High-grade CBO/CDO/CLO improves; Fed benefits likely to miss CLOs; loan outflows rise

By Cristal Cody

Tupelo, Miss., May 1 – Investment-grade CBO/CDO/CLO paper improved to an average 93.50 in secondary trading on Thursday from 91.80 on Wednesday, 89.60 on Tuesday and 90.40 on Monday, according to Trace data.

Non-high-grade paper was slightly better on Thursday at an average 59.90 from 59.60 on Wednesday. Prices averaged 62.60 on Tuesday and 78.20 on Monday.

Secondary market volume jumped to $915.37 million in high-grade CBO/CDO/CLO paper on Thursday from $622.45 million on Wednesday.

High-grade trading volume included $1.02 billion of volume on Tuesday and $434.63 million on Monday.

Secondary market volume in non-high-grade CBO/CDO/CLO issues also rose to $233.51 million on Thursday from $108.38 million on Wednesday, $186.33 million on Tuesday and $48.2 million on Monday.

Meanwhile, the CLO market is not expected to see direct benefits from the Federal Reserve’s expansion announced on Thursday to its Main Street Lending program.

Businesses with up to 15,000 employees or up to $5 billion in annual revenue are now eligible, compared to the initial terms for companies with up to 10,000 employees and $2.5 billion in revenue.

“While we consider this a positive for the pro rata/TLA loan market as more businesses are eligible for additional credit support from banks, we note that the effects of the MSLP program expansion are unlikely to reach institutional loans or CLOs,” Wells Fargo Securities, LLC analysts said in a research note. “We do not foresee a direct benefit for the institutional loans that make up broadly syndicated CLOs or middle market CLOs, but there could be a marginal benefit if some eligible borrowers temporarily improve liquidity through the program.”

The increase in the company size limits also “still likely excludes most sponsor-owned businesses given company size includes affiliates; this includes the BSL and middle market institutional loan markets,” the Wells Fargo analysts said.

The U.S. broadly syndicated CLO space showed more stress in April than middle-market CLOs or euro CLOs, Wells Fargo said.

“Almost 60% of the reporting BSL CLOs failed the CCC limit of 7.5%; only 12% breached the Caa limit of 7.5%,” the analysts said. “The average BSL CLO WARF increased by 324 points, to 3,167.”

S&P Global Ratings on Friday announced it placed ratings on 48 classes from 27 U.S. broadly syndicated CLOs on CreditWatch with negative implications.

S&P now has 406 CLO ratings on CreditWatch, about 9.7% of its outstanding CLO ratings.

Meanwhile, leveraged loan funds had outflows of $484.7 million for the past week ended Wednesday, an increase from last week’s redemptions of $391.5 million, Fitch Ratings said in a report on Friday.

“Loan funds saw their first week of inflows of $29.5 million in the week ending April 22 after 12 straight weeks of redemptions,” Fitch said.

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