Wells Fargo has increased its forecast for issuance of collateralized loan obligations, once again, to $125 billion for full-year 2014.
In a fourth-quarter outlook published this week, the bank said it expected issuance would continue to be robust through the end of the year. August was unusually busy, as CLO managers took advantage of the selloff in leveraged loans by mutual funds to acquire collateral for new deals on the cheap.
Wells Fargo’s previous forecast, published in April, called for issuance to range between $80 billion and $90 billion. But the market has already reached the upper end of that range: some $60 billion were issued in the first half of the year, and issuance for the third quarter to date is at least $30 billion.
In the report, analysts noted that the fourth quarter is typically the busiest of the year. “Therefore, if these patterns hold, Q4 2014 should see at least $30 billion in issuance, with the possibility of $40 billion,” the report states.
By comparison, issuance for all of 2013 was $83.1 billion.
Wells Fargo’s original forecast, published in December 2013, was for a modest $60 billion of issuance this year. That was based on expectations that restrictions imposed by the Volcker Rule would make CLOs less attractive investments for banks, the biggest buyers of the triple-A tranches of these deals. Instead, new deals are being structured to comply with Volcker, and the investor base for triple-A tranches has also broadened.
Among the deals hitting the market this week is the $450 million Battalion CLO VI, managed by Brigade Capital Management and underwritten by Citigroup Global Markets; ACIS Capital Management’s $457.75 ACIS CLO 2014-5, underwritten by Nomura Securities International; Columbia Management Investment’s $471.20 Cent CLO 22, via JP Morgan Securities; Aegon USA Investment Management’s $417.50 Cedar Funding IV CLO, via Jefferies, and GSO/Blackstone Debt Funds’ $515 million Thatcher Park CLO, with Goldman Sachs as the arranger and placement agent, according to rating agency reports.
Monroe Capital also announced the closing of what it says is the middle-market CLO to comply with new European risk retention requirements. The $358 million Monroe Capital CLO 2014-1 is also the firm’s first CLO since the financial crisis and was marketed to many investors in its previous deal. The transaction is secured mostly by senior secured loans to small and medium-sized companies and has a four-year reinvestment period.
Monroe sold securities rated from triple-A through double-B, as well as equity interests while retaining some of the equity itself.
Deutsche Bank served as the lead manager, structuring agent and bookrunner.
