CLO primary quiet, hints of strong pipeline for first half of year; secondary spreads flat

By Cristal Cody

Tupelo, Miss., Jan. 21 – CLO primary and secondary market activity remains mostly quiet with action expected to pick up over the next couple of months, according to informed sources on Wednesday.

CLO managers 3i Debt Management U.S. LLC, PineBridge Investments LLC and Apollo Credit Management (CLO) LLC are in the deal pipeline with transactions expected to price in the near-term, sources said.

“The primary market has gotten off to another slow start in 2015,” Wells Fargo Securities, LLC senior analyst Dave Preston and associate analyst Jason McNeilis said in a note.

“Volatility across asset classes has led to a slowdown in secondary activity, as investors appear to have no real incentive to enter a market [that] may be subject to volatility that enters from other markets,” the analysts said. “Generally, spreads are flat, but investors are showing little conviction at this point.”

AAA spreads are mostly unchanged in the Libor plus 155 basis points area, according to market sources.

In 2014, 106 managers issued a CLO – the highest number of managers that have priced a deal in a single year on record, according to Wells Fargo. In 2013, 92 managers brought CLO deals.

CLO issuance should stay robust for the first half of the year, according to an Appleby Global Group Services Ltd. report released on Wednesday.

“Based on the first six months of the year and looking at our own pipeline of warehoused deals (at over 30 deals), our new issue CLO forecast remains strong at least for the first half of 2015,” according to the report from the London-based offshore legal services provider.

“The market dynamics in some areas are already changing with more diversification in CLO investors, including new non-bank investors entering the market such as pensions and hedge funds and some increased demand from insurance companies,” the report said.

Market analysts forecast as much as $120 billion of CLO issuance for the year.

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