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Pricing on junior mezzanine notes is diverging as managers have to cope with difficult conditions
Manager extends non-call by a year, tapping into market for shorter-dated deals
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S&P Global Ratings said on Monday that it has placed 25 tranches from 15 CLOs with high exposure to energy sector obligors on ratings watch negative. -
Alternative credit specialist CIFC has hired David Walker as head of research.
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CLO managers and investors are facing a nearly unprecedented crisis in corporate credit, but sources say that while defaults loom, they are hopeful recovery rates will deliver the market from disaster.
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After the 2008 financial crisis, JP Morgan’s chief investment office restored the European securitization markets, buying billions of UK and Dutch RMBS. Now, market players are looking to JP Morgan and Citigroup’s CIO units again to scoop up senior securitization bonds and backstop the market.
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The synthetic risk transfer market, where specialist hedge funds write protection on up to €100bn of notional risk per year from banks, is grappling with the impact of the coronavirus on SME and corporate credit. The illiquid bilateral transactions barely trade, but have increasingly been financed through the repo market, giving banks and funds a challenge as they fight over where the positions should be marked.
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The Federal Reserve said this week that it would revive its Primary Dealer Credit Facility, expanding the program to include triple-A rated CLOs, as the central bank dives deeper into the crisis era playbook to stem the fallout from the coronavirus crisis.
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An expected wave of defaults in corporate credit is driving stress in the CLO space, spurring some in the market to begin internal discussions to make their pitch to the government for greater protections.
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The high volume of bids wanted in competition (BWIC) registered last week in CLOs dropped on Monday as credit instability increased and investors asked for greater protections as Libor craters.
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Last week European securitization markets saw a heavy supply of BWICs (bids-wanted-in-competion), with over €487m of CLO bonds on offer. But few of the bid lists are finding clearing levels, with 64% did-not-trade in CLOs last week.
