So far this year, securitization of loans to small and medium-sized companies totals $4.9 billion, according to Wells Fargo.
In research published today, the firm said so-called middle-market collateralized loan obligations account for 7.3% of the total U.S. CLO issuance of $67 billion.
By comparison, middle-market CLO primary volume was $4.2 billion, for 7.6% of the total CLO issuance for all of 2012.
Middle market CLO are structured differently than CLOs backed by broadly syndicated corporate loans; tend to pool a smaller number of loans, meaning the pool is less diversified by company and by industry. Also, they tend to pool loans with lower ratings than those in broadly syndicated CLOs. To compensate for this added risk, middle market CLOs offer investors higher coupons as the senior tranches of these deals benefit from higher subordination of other tranches.
However Wells Fargo said that this gap has narrowed in September and October. The senior, AAA-rated tranches of recent middle market deals have priced in the 175-basis point range, compared with 145-150 basis points for AAA-rated tranches of broadly syndicated loans.
By comparison, the gap in spreads more typically ranges from 25-50 basis points.