CLO primary market quiet; strong supply post-holiday eyed; new issue spreads improve

By Cristal Cody

Tupelo, Miss., Sept. 2 – CLO primary market action remains quiet to date in September, while secondary market action has been steady.

The primary market slowed in August, but volume in September is “expected to be heavy,” Wells Fargo Securities, LLC analysts said in a research note on Wednesday.

Issuance is expected to pick up after the Labor Day holiday, according to market sources.

Year to date, about $48 billion of dollar-denominated broadly syndicated CLOs and over €13 billion of euro-denominated CLOs have priced, while about $29 billion of vintage CLOs have been refinanced.

New issue CLO AAA spreads ended August 10 basis points tighter on the month at an average Libor plus 150 bps, according to the Wells Fargo report.

Tranches were mostly tighter across the capital stack on the month, with the exception of BB spreads, which ended flat at Libor plus 800 bps on average.

AA and A spreads improved about 25 bps on the month to Libor plus 185 bps and Libor plus 255 bps, respectively, while BBB traches firmed 20 bps to an average Libor plus 400 bps.

The secondary market continues to see strong activity with August closing as the third most active month of the year, the analysts said.

BWIC supply totaled $4.37 billion for the month, compared to $2.71 billion in July. CLO AAA tranches made up the majority of volume with $2.34 billion traded in August, according to the note.

In secondary trading this week, volume has been moderate with $262.52 million of high-grade CBO/CDO/CLO notes and $139.16 million of lower-rated tranches traded on Tuesday, according to Trace.

High-grade paper averaged better at 99.10 in the prior session, while non-investment-grade issues improved to an average 81.70.

On Monday, $156.35 million of investment-grade issues were traded at an average 98.30.

The session also saw $53.81 million of lower-rated tranches trade at an average 76.70.

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