CLO volume ahead of year-ago period; Barclays cuts forecast on sleepy start; spreads firm

By Cristal Cody

Tupelo, Miss., Feb. 27 – CLO issuance reached $12.9 billion from 25 deals priced year to date, though the slow start to the primary market still has participants worried, according to market sources and Prospect News data on Friday.

February global volume includes 15 CLO transactions totaling $7.45 billion, according to the data.

Issuance in February 2014 was $6.4 billion, Wells Fargo Securities, LLC analysts said on Friday.

“U.S. CLO issuance for 2015 is $12.9 billion year to date; issuance for the comparable period in 2014 was $8.9 billion,” Wells Fargo senior analyst Dave Preston and associate analyst Jason McNeilis said in a note. “Still, the market has looked at 2015 issuance as slow, perhaps because investors were expecting 2015 volume to retain 2014’s monthly pace of $10 billion.”

Barclays analysts on Friday lowered their 2015 CLO issuance forecast to $90 billion to $110 billion of volume from an initial estimate of $100 billion to $120 billion.

“CLO issuance has also been slow this year, with about $13 [billion] pricing thus far,” the analysts said in a note. “We still think CLO issuance will pick up as managers figure out a way forward in the primary market and energy fears fade into the background, but the lack of new loans may hamper the arb if collateral spreads tighten.”

CLO spreads firm

New issue CLOs and secondary spreads have tightened over the past month.

“Primary AAA spreads are now in the 150 bps-155 bps range, 5 bps-10 bps tighter than in December and January,” the Wells Fargo analysts said.

Risk retention and a slower pace of primary action may be driving the primary tightening, according to the note.

“Spreads have tightened throughout the capital stack, with demand for BBBs leading the way,” the Wells Fargo analysts said. “As the market anticipates an influx of primary issuance (and upsizes), spread tightening may be limited as supply increases.”

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