US CLO Issuance Remains Muted in February at $2.1B

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U.S. CLO issuance remained muted in February, with just five deals pricing totaling $2.1 billion, according to Thomson Reuters LPC. However that was an increase from the $826 million from two deals posted in January.

NewStar Financial, Neuberger Berman, BlackRock Financial Management, Credit Suisse Asset Management and Denali Capital all completed collateralized loan obligations during the month.

Highbridge Principal Strategies subsequently came out with a $406 million deal in March.

In Europe, a single €414 million CLO priced in February, bringing year to date volume to €825 million from two deals.

The average size of the four U.S. CLOs backed by broadly syndicated loans was $431 million, up marginally from the January average of $413 million. (NewStar’s deal was backed by loans to small and mid-sized companies.) Year to date, the average deal size is $425 million. For full year 2015 it was $527 million.

U.S. CLOs assets under management edged lower to $423 billion in February, while assets in European CLOs held steady in the €64.5 billion area.

Trading of U.S. CLOs also fell to $40 billion in the fourth quarter of 2015 from $47 billion in the third quarter and $52 billion in the second quarter. 2Q15.

Valeant Pharmaceuticals remains top holding, at $3.81 billion, followed by First Data ($3.36 billion and Asurion Corp. ($3.1 billion).

CLO issuance has been held up by a lack of new loans used as collateral as well as a sharp selloff in loans currently held in these deals. Noranda Aluminum Holding and Paragon Offshore defaulted in February with institutional loan debt amounting to $1.1 billion, further detracting from the market’s appeal.  Year to date there has been $4.4 billion of institutional loan defaults.

After a slow start to the year, however, leveraged loan issuance picked up in February to $50 billion. This number was boosted by some deals that launched in 2015 but completed in 2016. Over half of leveraged deal flow so far this year (56%) is pro rata, or syndicated among banks, as opposed to among CLOs and other institutional investors.

Institutional loan issuance was higher in February, amounting to $24 billion (again boosted by some deals launched in 2015 but completed in 2016), with new money activity making up 96% of issuance.

By industry, technology companies issued the most loans, followed by beverage, food & tobacco companies, and then retailers.

U.S. loan bids moved lower again in February, though the rate of decline eased, with multi-quote institutional term loans ending the month at 90.92, down roughly 37 bps.   The flow name SMi100 finished at 95.53, off 44 bps.

Oil & gas loan bids have tumbled to the 54 area on a straight average basis.

Following a period of outperforming U.S. loans, the European Lev40 came under pressure in February, dropping 170 basis points to 97.14.

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