CBO/CDO/CLO paper gains on stronger trading volume; impact light on euro, middle-market CLOs

By Cristal Cody

Tupelo, Miss., April 23 – Securitized secondary market supply increased to $661.18 million of high-grade CBO/CDO/CLO issues and $176.77 million of non-high-grade securities on Wednesday, while prices also improved, according to Trace data.

High-grade CBO/CDO/CLO traded at an average 91.60 on Wednesday, improved from 90.20 on Tuesday and 88.20 on Monday.

Lower-rated CBO/CDO/CLO paper rose to an average 67.70 on Wednesday from 66.50 on Tuesday but still off the 69.60 average on Monday.

Previously, $206.14 million of high-grade paper traded on Monday and $309.03 million was traded on Tuesday.

Secondary volume in lower-rated paper included $139.83 million of securities on Monday and $90.21 million on Tuesday.

U.S. CLOs lose cushion

Meanwhile, the impact on the structured finance market from the coronavirus continues with more than 10% of U.S. broadly syndicated CLOs failing their minimum overcollateralization ratio tests in April, according to a Wells Fargo Securities LLC analysts’ note on Thursday.

Euro-denominated broadly syndicated CLOs and middle-market CLOs are “immune thus far,” the analysts said.

U.S. broadly syndicated CLOs saw a 94 basis point drop in minimum overcollateralization ratios, from an average starting position of 392 bps of cushion, according to the report.

“The market median cushion dropped by 113 bps to 278 bps,” the analysts said.

So far in April, 11.1% of broadly syndicated CLOs failed their minimum OC test, while roughly 25% of CLOs had an OC decline of greater of than 2 points and over half of the reporting BSL CLOs failed the CCC limit of 7.5%, the analysts said.

“Euro CLOs fared much better,” the analysts said.

Of the reporting CLOs, no euro CLOs failed the minimum OC test in April, and the average drop in OC cushion was 17 bps from an average March OC cushion of 446 bps, according to the report. About 25% of euro CLOs saw CCC baskets rise to greater than 7.5%.

“Among CLOs with April data, U.S. MM CLOs also did not have any deals trip an OC test,” the Wells Fargo analysts said. “Also, only 1 MM CLO saw Caa holdings increase to greater than 15%.”

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