Latest news
Latest news
Lower pricing across CLO capital structure does little to improve equity arbitrage
Manager tightens triple-A pricing by 27bp and avoids refinancing some junior mezzanine notes
Spread on triple-A rated notes 4bp wide of recent tights
More articles
More articles
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New issue CLO volume dropped 32% year over year in 2016, according to Fitch, despite a year end flurry of issuance as the market raced to get deals done ahead of new risk retention rules. -
Third party risk retention funds are looking increasingly attractive to global CLO managers, after the onset of US risk retention rules and potential stiffening of European rules make the CLO business more capital intensive.
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Spreads on triple-A paper from new issue US CLOs are expected to touch the 130bp over Libor area for a deal from Octagon Credit Investors later this month, though observers say the market could tighten further.
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The three month Libor rate topped 1% for the first time since 2009 this month, raising concerns among CLO and leveraged loan players, though most sources say they are confident that credit fundamentals are strong enough to withstand rate related shocks.
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Tight conditions in the European leveraged loan market are proving a boon for borrowers such as private equity houses, but CLO managers, which form a large proportion of the lending base to that market, are starting to feel the pain. CLO equity investors at the bottom of the chain will determine how far the screws can be turned, write David Bell and Max Bower.
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Spreads on new issue CLO senior bonds have rallied with the first deal of the year, but mezzanine spreads look likely to widen after a deluge of lower rated paper flooded the secondary market in the past week.
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Andrew Bellis, a former managing director at 3i Debt Management, has joined private markets investment firm Partners Group in London.
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US CLO trading volumes last week topped the average level seen in 2016, as low supply of new issuance drove investors to the secondary market.
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European CLO investors are targeting mezzanine and junior tranches of US and European deals, as wide spreads further down the capital stack lag the aggressive tightening seen in senior paper.
