Securitized trading light in thin start to week; CLO risk retention rules up for change

By Cristal Cody

Tupelo, Miss., Oct. 11 – CLO BWIC volume and securitized secondary trading volume has been light this week with action seen picking up modestly on Wednesday, according to market sources.

In the secondary market on Tuesday, $21.53 million of high-grade CBO/CDO/CLO issues and $56.72 million of non-investment-grade securities were traded, according to Trace.

Elsewhere, CLO managers and market participants were mulling various possible regulatory changes following the Treasury Department’s Oct. 6 release of a regulatory reform report on capital markets.

“We believe that CLO managers could become exempt from risk retention; alternatively, a new retention requirement could resemble the Qualified CLO concept proposed by the Loan Syndications and Trading Association, which would require managers to retain 5% of the equity, rather than 5% of the deal,” according to a Wells Fargo Securities LLC analysts’ note on Wednesday.

“We believe any risk retention relief would help the entire CLO market, but we think it would be most beneficial to smaller managers, who have had more difficulty complying with risk retention,” the analysts said. “We believe that some large managers will continue to employ risk retention funds (perhaps at a smaller scale going forward) as these funds have attracted a new class of equity investors.”

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