U.S. CLO Issuance Bounces Back in February to $8.1B

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U.S. CLO new issue bounced back in February with 15 deals coming to market for a combined total of $8.1 billion, according to Thomson Reuters LPC.

That brings total volume for the first two months of the year to $9.1 billion from 17 collateralized loan obligations.

Despite the pickup in supply, the risk premiums that investors demand on triple-A rated CLO notes continued to shrink during the month, to an average of 133 basis points over Libor from 145 basis points January. The tightest AAA tranche priced at a yield spread of 126 basis points.

In Europe, just two new CLOs totaling €830 million priced in February, taking volume for the year to date to €1.24 billion from three deals.

U.S. refinancing activity spiked in February to $17.1 billion from 37 deals; while resets amounting to $1.4 billion from two deals. Total volume for both kinds of transactions reached $26.2 billion year to date.

European activity was also more focused on refinancings and resets, with three deals worth €1.1 billion resetting and two deals totaling €611 million refinancing.

European CLO pricing continues to tighten. The two deals that priced in February had spreads of 93 basis points and 92 basis points, compared with 95 basis points for the single January transaction.

Assets under management stand at $442 billion for U.S. CLOs, while European CLOs are at €66 billion.

Below investment grade loans that collateralize CLOs are also getting pretty hard to come by, driving up prices. The share of loans in U.S. CLOs trading above par, or face value, edged higher to 68% in February. In European deals, the share of par-plus loans increased to 83% from 77% a month earlier.

While U.S. leveraged loan issuance is off to a very strong start this year, amounting to $243 billion, activity has been driven by refinancing, rather than new issuance.  A lofty 76% of leveraged loan volume this year represents refinancing activity as borrowers take advantage of market technicals to reduce their funding costs..

Much of the new issuance was to finance dividend payments to shareholders; these kinds of deals total $7.6 billion for the year to date.

The top three sectors in terms of leveraged loan issuance this year are technology ($37.5 billion), telecom ($23.8 billion) and retail ($21.4 billion).

European leveraged loan issuance is at $20 billion year to date, with refinancings representing 59% of deal flow.

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