CLO market remains mute as investors eye potential defaults among stressed issuers

By Rebecca Melvin

New York, Jan. 22 – The CLO primary market was quiet again on Friday and secondary market trading levels were low as equity markets extended gains in what has so far amounted to a two-day bounce back from steep and broad-based selling earlier in the week and last week.

Given the lack of market activity, investors in loans and CLOs were likely to be watching what appears to be stressed issuers moving closer to default.

Southcross Energy Partners LP, which suspended investor distributions and hired financial advisers on Jan. 8, has the biggest single exposure in U.S. CLOs, with $507 million in exposure, Wells Fargo Securities analysts David Preston, Geoff Horton and Mackenzie Miller wrote in a note on the CLO market published Friday.

By way of contrast, U.S. CLOs hold a total of $337.3 million of Arch Coal Inc. debt, the Wells Fargo analysts pointed out. Arch Coal filed for Chapter 11 bankruptcy on Jan. 11.

Seventy Seven Energy Inc. hired financial advisers to review the company’s capital structure on Jan. 12, and on Jan, 15, Paragon Offshore plc deferred an interest payment and has a 30-day grace period before an event of default, the Wells Fargo analysts wrote, citing Bloomberg News.

In addition, Verso Corp. is said to be preparing to file for bankruptcy protection imminently as a grace period on a missed interest payment nears expiration.”

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