CLO primary slowly reopens; dollar, euro CLO forecasts drop; senior tranches firm

By Cristal Cody

Tupelo, Miss., May 4 – The primary markets in the United States and Europe are slowly opening with new CLOs priced in late April and a handful being marketed in May.

At least one static dollar-denominated CLO and a euro-denominated CLO priced last week, sources report.

As previously reported, Redding Ridge Asset Management (UK) LLP priced €288.2 million of notes in the Zinnia Finance DAC broadly syndicated CLO offering.

Year to date, dollar-denominated primary market is down 53% year over year with issuance limited due to market volatility from the coronavirus impact, according to a Wells Fargo Securities, LLC report on Monday.

Wells Fargo analysts now expect total U.S. CLO issuance of $50 billion and €15 billion of euro-denominated supply for 2020.

Year to date, $20.8 billion of notes have priced in 43 broadly syndicated CLOs, while about $25.5 billion of vintage CLOs have been refinanced, reset or reissued.

In April, three euro-denominated CLOs priced, bringing year to date volume to €6.7 billion, 32% lower year over year, the Wells Fargo analysts said.

As the year opened, market participants expected about $90 billion to $100 billion of dollar-denominated CLO issuance and €26 billion of euro deal volume for 2020.

“Issuance picked up slightly in April with 9 BSL deals issued compared to 8 in March,” the Wells Fargo analysts said.

Refinancing volume “ceased in April,” the analysts noted.

One middle-market CLO priced in March with no issuance reported in April, the analysts said.

Secondary active

In the secondary market, BWIC volume totaled $742 billion for the week ended Friday, down from $932 million in the prior week, BofA Securities, Inc. analysts said in a note released Monday.

CLO AAA, AA and BBB spreads tightened 10 basis points on the week, while single-A tranches firmed 20 bps week over week, according to the report.

Demand was healthy “from money managers as they continue to prefer cleaner and higher quality portfolios as downgrades continue,” the BofA analysts said. “The story is the opposite down in credit as investors are hesitant to buy bonds that are not considered best-in-class. Thus, CLO BB and single-Bs remained unchanged [week over week] as liquidity remains challenged.”

CLO AAA spreads were quoted 10 bps better on the week at an average Libor plus 210 bps. BB tranches were flat at an average Libor plus 1,225 bps.

In the secondary market, high-grade CBO/CDO/CLO paper averaged 91.90 on Friday, down from 93.50 on Thursday, according to Trace data.

Lower-rated securities averaged 61.60 on Friday, up from 59.90 in the previous session.

Secondary market volume included $500.66 million of high-grade CBO/CDO/CLO securities and $348.07 million of non-investment-grade issues on Friday.

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