With such a strong pipeline for collateralized loan obligations in Europe – managers expect full-year 2018 issuance to best the record €20.91 billion last year – the market could experience further indigestion, which was already witnessed pre-summer. Due to that overcrowding, CLO spreads have widened to as much as 96 bps on the AAA portion of the deals, for the last print and to an average of 92 bps in August, according to LCD.
Likewise, CLO spreads in the U.S. have risen amid issuance which also is expected to set records this year (there’s $92 billion of new vehicles so far this year, compared to $73 billion YTD 2017). Indeed, the last week of August has historically been a quiet one, allowing market participants a breather before activity picks up in the fall, but this year has been noticeably different, with a surprising 14 new issues and 10 resets/reissues pricing the last two weeks, according to LCD.
“It’s absolutely astounding how there has been no slowdown whatsoever this year,” one CLO manager said.
CLOs are special-purpose vehicles set up to hold and manage pools of leveraged loans. These vehicles are a critical investor component to the leveraged loan market, which totals some $1.1 trillion in U.S. alone, according to the S&P/LSTA Loan Index. – Isabell Witt/Andrew Park
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