CLO pipeline hits $13.6 billion; Volcker puts 'chill' on primary; BBB, BB notes widen

By Cristal Cody

Tupelo, Miss., Feb. 7 - Issuance in the collateralized loan obligation market is picking up but remains behind levels seen in early 2013, according to market sources on Friday.

More than $3.5 billion of CLOs have priced year to date, below the $9.5 billion issued in the same period in 2013, sources said.

Primary activity cooled in January as the market continues to determine the outcome of the Volcker Rule, which prohibits banks from owning CLOs that hold bonds. Regulators announced the rule on Dec. 10.

"Obviously, the Volcker Rule has acted to put a chill on the primary market," according to a Wells Fargo Securities, LLC report on Friday from Dave Preston, senior analyst, and Jason McNeilis, associate analyst.

"New issue deals are Volcker compliant, but banks may be wary of buying new issue without resolution on their legacy holdings," the report said. "Banks may also be pushing for managers to amend older deals before looking at new deals. Market reports indicate a full pipeline, with managers ready to issue once the AAA investor base has more clarity on the regulatory front."

About $13.6 billion of broadly syndicated and middle market CLO deals are in the pipeline, a source said on Friday.

Credit Suisse Asset Management, LLC, unit of Credit Suisse Group AG, started the week's primary action with the $746.04 million Madison Park Funding XIII Ltd./Madison Park Funding XIII LLC CLO deal. The CLO sold the $449.49 million tranche of class A senior secured floating-rate notes (//AAA) at Libor plus 145 basis points on Monday.

ING Alternative Asset Management LLC tapped the market midweek with the $412.85 million ING IM CLO 2014-1, Ltd./ING IM CLO 2014-1 LLC deal. The CLO sold the $256 million slice of class A-1 floating-rate notes (//AAA) at Libor plus 150 bps on Wednesday.

New York-based ING Alternative Asset Management is an affiliate of ING Investment Management Co. LLC.

New York City-based CIFC Asset Management LLC also was expected to price the $621.9 million CIFC Funding 2014 Ltd./CIFC Funding 2014 LLC deal on Thursday.

BBB, BB notes ease

In the secondary market, volatility in the equity and credit markets "took its toll" on broadly syndicated CLO BBB and BB spreads, which widened about 25 bps to 50 bps, according to Wells Fargo. BBB notes have widened to Libor plus 400 bps, while BBs eased to Libor plus 585 bps.

AAA notes are unchanged on the week at Libor plus 155 bps in trading, the report said.

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