Global credit funds & CLO's
February 2020
| Issue 220
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February 2020
|
Issue 220
Analysis CLOs
CSAM sees sun after nine years in shade
Tanvi Gupta
Head of data journalism
Research Lafri Reda
Credit Suisse Asset Management is now the leading CLO manager by AUM globally after finally topping perennial leader GSO Capital Partners. However, its lead is the size of just one CLO
After nine years — and 1,998 CLO launches from 174 CLO issuers — there is a new leader atop the global CLO manager league tables, with Credit Suisse Asset Management dethroning GSO Capital Partners. CSAM now leads the way with $31.6 billion in CLO AUM, but its advantage over GSO is slender with just $414.6 million (or a run-of-the-mill CLO) separating the pair.

CSAM has been on a tear for the past three years, printing 36 deals in the US and 10 European deals in the process of becoming the most prolific issuer in each of those years. In 2018, CSAM brought nine US deals, including a bond-flex CLO, to market — bringing its new issue volumes to $7.2 billion in that year.
Next generation of managers emerge
The increasing number of managers that have been active in the CLO 2.0 market does not tell the whole story, because 22 managers that have previously been active did not price new deals last year. Of these, 13 managers priced deals in 2018, while Credit Value Partners, 40/86 Advisors and Acis Capital Management have been silent in the new issue market since 2017. Cohen & Company, Global Leveraged Capital and Saratoga Investment Management are the only 1.0 managers to have liabilities outstanding and no CLO 2.0 to their name.

However, Saratoga has repriced its 1.0 CLO, extending the life of that transaction.
The arrival of new managers means that new CLO partnerships must be forged. JP Morgan is top choice for debutants in the US as AGL, Birch Grove, Fort Washington, HalseyPoint and Whitebox picked the bank to arrange their inaugural deals. That accounted for $2.8 billion (21%) of JP Morgan’s new issue CLO business.

Citi, Jefferies, Morgan Stanley and Wells Fargo brought one debut deal each in the US. GreensLedge, considered the pioneer in the bond-flex CLO market, priced a deal for one debutant in this market: Diameter.

In Europe there was no go-to arranger for rookies to rely on. Citi and Deutsche Bank partnered with two new managers apiece.
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Volumes: $213bn total CLO issuance in 2019
-43.1%
Morgan Stanley’s fall in US CLO new issue volume
“During its rise, CSAM has issued fewer deals than its compatriots, Carlyle and GSO”
Overtaking Carlyle
On it’s way to the top, CSAM surpassed Carlyle Group during the second quarter of 2018 (see chart, page 16). Since 2017, Carlyle’s global share of the CLO market has declined from 3.8% to 3.3% as of December 2019. It now sits in third place, with PGIM just $315.8 million (or a mid market CLO) behind.
$32bn
Total CLO AUM of largest CLO manager CSAM
During its rise, CSAM has issued fewer deals than its compatriots. Carlyle and GSO each have more CLOs to their name, with 56 global deals for GSO and 51 for Carlyle. CSAM has 46.
PGIM is fastest issuer
In the past two years, PGIM has been the quickest US manager to turn over deals. The firm has brought 14 new issue deals since 2018 with an average gap of 1.7 months between them. This includes print and sprint deals priced on 20 December 2018 and 23 January 2019.

It’s perhaps a surprise name which is second on the list of fleet of foot managers. Kansas-based Palmer Square Capital Management had the second quickest turnover rate, with one deal every 1.8 months on average. The manager priced 12 new deals over the course of 2018 and 2019, but five of these were static transactions. This style of deal results in an immediate drop off in AUM as the CLO begins to wind down shortly after issuance.

In Europe, Sound Point Capital Management has been the quickest to re-enter the primary CLO market. Again, this may come as a surprise given that the firm is a newcomer on the continent, having debuted only in April. But it has since priced three CLOs for a 3.3-month turnover rate.

In second place is HPS Investment Partners after it priced two deals in 2019 just three-and-a-half months apart. It is likely the firm was looking to release pent up loan portfolios having sat out the entirety of 2018.
10 managers debuted in the US CLO market last year, while eight landed in Europe for the first time. There was, proportionally, even more growth in mid market CLOs as four managers priced inaugural deals.

In Europe, Be-Spoke Capital priced the first European CLO backed by middle market credits since the financial crisis. The firm priced the one-of-a-kind CLO, Alhambra, in November via NatWest Markets and JP Morgan.

Among the managers returning to the market with their first CLOs since the crisis are Goldman Sachs Asset Management and Morgan Stanley Investment Management in the US, and CIFC Asset Management in Europe.

CLOs create the bulk of demand in the underlying leveraged loan market and with the influx of CLO newcomers there was increased competition for assets, especially as supply fell. In the US, leveraged loan issuance was down 37% to the lowest level since 2016. Europe was in positive territory, however, after a 4% increase from 2018. In total, there was $483.5 billion of institutional loan issuance in the US and €115.86 billion in Europe. New issuance was down in both markets: it fell 20.5% in the US (to $265.4 billion of new deals) and 13% in Europe (to €63.4 billion). New issue figures in both markets were half of overall volumes.

In the CLO market the picture is slightly different, with US CLO new issues coming in at 73% of last year’s total. The corresponding figure in the European market was 72%.

The decline in new issue loans left the CLO market unfazed, as the tallies of managers who priced new deals attest: these reached 95 in the US and 50 in Europe.
Those European figures are likely to grow this year. Creditflux has tracked 13 managers that are planning to launch European CLOs for the first time, including CBAM, Ellington Management and EQT.
“Creditflux is tracking 13 managers that are planning debut European CLOs”
Space for 22 more?
JP Morgan scoops up debut issuers
Citi never sleeps
Citi was the leading CLO arranger last year, cementing its decade long status as top arranger by volumes. In the US, Citi’s market share in new CLOs backed by bonds has dropped from 16% in 2017 to just under 14%. But in Europe it asserted its dominance by grabbing 23% of the market, compared to 19% in 2017. Globally, Citi’s 2019 numbers are roughly in line with its 2018 performance.

Morgan Stanley faced the largest drop in new issue market share — falling from $15.93 billion (14.3%) to $9.06 billion (8.4%). Wells Fargo increased its market share in new paper issuance by pushing up from $5.3 billion (4.8%) in 2018 to $9.52 billion (8.8%) in 2019. Bank of America and Credit Suisse were the other big names to lose ground in 2019.

In Europe, Credit Suisse faced the biggest drop in volumes. The bank’s output fell from €3.7 billion to €2.1 billion, squeezing its market share from 13.8% to 7.1%. Also in Europe, Barclays’ market share fell from 17.7% to 12.2%, losing it second place in the rankings to Bank of America, by the slim margin of €57.1 million.
  • All figures are verified with data available on CLO-i. Rankings are calculated using figures as of the end of Q4 2019.
  • In jointly arranged deals credit is split 75/25 between lead and co-arranger.
  • To qualify, a repricing must have changed a deal’s economics.
  • Resets are calculated based on debt and upsized equity only.
Preparing the rankings
* Totals exclude double-counting due to jointly arranged deals. In case of jointly arranged deals, credit split between lead and co-arranger
* Includes bond-flex CLOs
Natixis and Deutsche Bank achieved the fastest rates of growth in 2019. Deutsche Bank moved from 1.5% to 7.8% in 2019, while Natixis took a break in 2018 and returned to the market in April 2019 by pricing BlackRock European VIII. The bank ended the year with a market share of 6.97%.
Market share (%): Carlyle vs CSAM vs GSO
“10 managers debuted in the US CLO market last year, while eight landed in Europe for the first time”
Top Euro arrangers market share* (%)
Top US arrangers market share* (%)
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