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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A growing number of pension funds are turning their attention to the riskier part of the CLO capital stack in search of extra yields, attracted by the risk-adjusted returns offered by CLO equity and mezz, compared with other fixed income asset classes. -
Record levels of resets in the CLO market on both sides of the Atlantic are helping NorinChukin Bank, once the anchor investor for many triple-A tranches, slim down its investment portfolio in the asset class. Fortunately, new big buyers are stepping up at the top of the capital structure, and on less onerous terms than NoChu demanded.
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CLOs have 'by nature' a limited exposure to the industries commonly excluded under ESG criteria, meaning their investment flexibility will be preserved, despite the exclusions appearing in more and more deal documents. This bodes well for the growth of ESG screening in the US CLO market, which has lagged behind other markets, with only 10 deals so far featuring the language, according to Deutsche Bank.
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The State of Michigan Retirement System has recently disclosed a new commitment to a CLO fund, signaling that more pension funds are turning their attention to the CLO market, attracted by its fast recovery.
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When hot new debt products are on the march, someone will always push the boundaries beyond what is tolerable. In the case of recurring revenue loans, that would be a mistake.
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Three recent CLO issues have underlined the size of the US bank buyer base in triple-A rated tranches, structuring loan note tranches of more than €150m — a format favoured in particular by Bank of America and State Street for their investments, but which could further constrain liquidity at the top of the capital stack.
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New issue CLO supply declined slightly in March, though reset and refinancing activity continues to boom, with managers taking advantage of tight spreads.
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Ares Management has increased the size of one of its largest CLOs still further, resetting a $1.1bn transaction originally priced in 2017 and taking the opportunity to crank the deal up to a par value of $1.9bn.
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The Covid crisis has made the CLO market stronger and more attractive to investors, but it has also taught the CLO community to defend itself from distressed debt funds, agreed panellists at the IMN and FIIN conference in the session focused on the CLO market recovery.
