CLO primary market steady to slightly lower year to date; primary, BWIC volumes collapse

By Rebecca Melvin

New York, July 10 – Volume in the collateralized loan obligation primary market through June was pretty steady compared to the same period last year – or just slightly lower – but it threatens to fall further behind this month as macroeconomic concerns weigh on markets.

For July, so far there has been minimal new issuance, according to market sources. That compares to all of July 2014 when a whopping $16.35 billion in 31 deals priced, accounting for 12% of volume for the year, according to Prospect News’ data.

The CLO market seized up ahead of the July 4 holiday and remained quiet this past week amid credit concerns related to Greece, Puerto Rico and a plunge in China’s equities markets. Other debt markets including investment-grade and high-yield debt were also quiet, although they started to come alive toward the end of the week.

U.S. institutional loan issuance is $143.9 billion year to date as of July 8 and just 59% of year-to-date institutional volume in 2014.

“We expect a changing rate outlook to bring more volatility to all fixed-income markets, including the loan market,” Wells Fargo Securities analysts David Preston and Mackenzie Miller wrote in an updated market overview published Friday.

U.S. CLO spreads are mostly around the midpoint of their 52-week range, except for single B tranches, where the average primary U.S. spread on 2.0 and 3.0 deals was close to a 52-week high at 850 basis points over Libor on July 3, according to the Wells Fargo report.

The average spread on AAA tranches was 148 bps over Libor on July 3, which was within the 52-week range of 140 bps to 160 bps.

AA tranches and A tranches were below the midpoint on July 3 at 210 bps over Libor, compared to 190 bps to 255 bps for AA tranches, and 300 bps over Libor, compared to 275 bps to 360 bps for the last 52 weeks.

Primary euro CLO spreads as of July 3 were mostly above their 52-week midpoint, except for single B tranches, which were below their 52-week midpoint at 560 bps over Libor, compared to a 52-week range of 525 bps to 665 bps.

Volume in the CLO secondary market, or bid-wanted-in-competition, fell to next to nothing for the July 3 week, according to Wells Fargo. That was down compared to $329.1 million of BWIC supply for the week earlier, $569.9 million two weeks ago, and $1.17 billion four weeks ago, according to the Wells Fargo report.

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