According to Leveraged Commentary & Data (LCD), a unit of Standard & Poor's, leveraged loan issuance is down by half versus last year, which S&P analysts said is potential constraint for CLO issuance.
S&P analysts stated that corporate issuers have been using the high yield market more, where issuance has increased roughly 30% year-to-date. Longer durations at low fixed coupons make the high yield option attractive compared to floating rate loans, they stated.
However, analysts explained that CLO investment guidelines usually allow some exposure to fixed-rate collateral. On the other, weighted average life limitations lessen the ability to buy high yield bonds.
S&P analysts also mentioned the two CLOs that priced Friday, Madison Park Funding VIII worth $413 million and another one from The Carlyle Group worth $510 million, which is the eleventh and twelfth CLO this year.
The year-to-date annualized issuance pace of $25 billion is more than analysts' forecast of $15 billion. The pricing for both deals was the tightest in 2012, but wide of last summer's 125 basis points over Libor, analysts said.