CLO primary supply picks up; new issue spreads firm; leveraged loan outflows continue

By Cristal Cody

Tupelo, Miss., July 2 – CLO primary action slowed ahead of the financial markets’ closure for the Independence Day holiday, but volume is improving along with spreads, according to market sources on Thursday.

While primary volume is down 45% year over year, issuance improved 30% in June from May’s levels, Wells Fargo Securities, LLC analysts said in a market report.

“Issuance picked up in June with 20 deals issued compared to 15 in May,” the analysts said.

Volume included $7.8 billion of CLOs priced in June, compared to $5.98 billion in May, $3.88 billion in April and $3.41 billion in March, the analysts said.

Year to date, about $35 billion of dollar-denominated CLOs and more than €10 billion of euro-denominated CLOs have priced, Wells Fargo said.

The market is now expected to post about $65 billion of dollar-denominated supply and €15 billion of euro issuance for 2020, the analysts report.

CLO refinancing volume has ceased with no deals seen over the past three months, according to the report.

Refinancing issuance totals about $25.5 billion year to date, compared to $19.1 billion of volume in the same period last year.

AAA tranches improve

New issue CLO AAA spreads improved 5 basis points in June to the Libor plus 165 bps average, according to the Wells Fargo report.

AAA spreads have tightened from the wides seen in March at the Libor plus 235 bps area average.

In the secondary market, CLO AAA spreads were flat on the month, while A-rated traches widened 25 bps, according to the note.

CLO AA, BBB and BB spreads firmed by 5 bps to 90 bps in June.

This week, securitized secondary trading volume declined from the $1 billion-plus sessions seen last week.

Trading volume included $240.37 million of high-grade CBO/CDO/CLO notes and $76.43 million of lower-rated paper on Wednesday, according to Trace data.

Prices were flat at a 97 average for high-grade issues and softer at 80.70 for non-high-grade securities.

On Tuesday, $327.27 million of high-grade paper averaged a price of 97, while $24.03 million of lower-rated issues traded at an average 83.50.

At the start of the week, $291.69 million of investment-grade CBO/CDO/CLO notes and $66.74 million of non-investment-grade issues were traded.

The high-grade issues averaged 96.40. Lower-rated paper traded at an average 81.40 on Monday, Trace data shows.

Elsewhere, leveraged loan outflows continued over the past week ended Tuesday, according to a BofA Securities, Inc. research note released on Thursday.

Outflows totaled $310 million.

In the full prior week, Fitch Ratings reported leveraged loan fund outflows of $91 million, down from $563 million of outflows a week earlier.

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