New issuance for collateralized loan obligations (CLOs) continues to play a meaningful role in reducing the debt wall of existing CLOs nearing the end of their reinvestment periods, according to a Moody's Investors Report.
The ability for the CLO market to find new funding means that the market will manage to absorb their maturing instruments provided there is no material, unexpected deterioration in the market environment, explained the Moody's report.
CLOs are expected to raise upwards of $10 billion, relieving credit markets of the pressure from massive corporate debt set to mature through 2015. If current pace maintains, CLOs are predicted to account for as much as $100 billion of refinancing needs through 2015.
A new wave of CLOs is expected to hit the market upon the ending of the reinvestment period for 360 CLOs created in 2009. This is a reversal from the financial crisis, during which CLO issuances all but disappeared due to the market climate resulting from the dissolution of Lehman Brothers Holdings Inc.
“New CLO issuance will continue to increase, provided the economic climate remains positive,” reported by Moody’s analysts led by Oksana Yerynovska. The “need to refinance loan volumes is likely to spur new CLO activity as we move further away from the crisis.