New issue CLO AAA spreads tighten, BB, B notes widen; secondary market action thins

By Cristal Cody

Tupelo, Miss., Aug. 2 – New issue CLO investment-grade spreads tightened in July, while lower-rated tranches widened, Wells Fargo Securities LLC analysts said in a note on Wednesday.

“Primary U.S. CLO IG spreads moved 2 [basis points]-5 bps tighter in July from June, while primary BB and single-Bs moved 10 bps-15 bps wider,” the analysts said. “Secondary CLO spreads were generally flat month over month.”

Broadly syndicated CLO AAAs have been issued in July on average in the Libor plus 121 bps area, the note said.

CLO primary and refinancing activity remains strong as August gets underway with more than $50 billion of new deal volume as well as more than $100 billion of refinancing and reset activity year to date, according to market sources.

“Refinancing and reset activity remained active, but slowed from the June pace; $10 billion in refis and resets priced in July, half the volume priced in June,” the analysts said.

BWIC volume and secondary trading volume have thinned, according to market sources.

“BWIC supply declined [month over month] to $1.6 billion in July from $2 billion in June,” the Wells Fargo analysts said. “AAA, AA and single-A BWIC supply made up a larger share of supply in July compared to June (66% compared to 47%).”

On Tuesday, $68.5 million of investment-grade CBO/CDO/CLO issues and $122.77 million of non-high-grade securities were traded, according to Trace. On Monday, $81.62 million of investment-grade securities and $45.96 million of non-high-grade issues traded.

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