Global credit funds & CLO's
January 2020
| Issue 219
Published in London & New York.
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News derivatives
CSO arrangers look to build on $65bn of issuance in 2019
Dan Alderson
Deputy editor
January 2020
|
Issue 219
The synthetic bespoke tranche market this year has fallen short of expectations in terms of overall issuance volume, but ends with transformative inroads being made. And sources say there is every reason to be excited about the developments 2020 will bring.
Obtaining figures for issuance and market share is challenging in an asset class where transactions are private, dealers coy and investors have limited visibility. However, a Creditflux survey of market participants suggests there was around $65 billion notional of bespoke tranche business in 2019, down from $80 billion or so in 2018, but above the $55 billion issued in 2017 and well beyond 2016’s $20 billion.

Perhaps more significantly, this year’s total includes as much as $5 billion of static five-year bespoke tranches. These extended the market’s reach beyond its familiar two- to-three-year horizon as new investors demonstrated appetite for longer exposure. Five-year portfolios in which a manager is able to make substitutions over the life of the deal are yet to appear, but work behind the scenes points to a breakthrough soon. These could widen the synthetic buyer base, in particular to CLO investors.

“The first managed deal should get done early next year,” says one structured credit specialist.
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“Work has been done to decide on a replicable framework and management structure, but no-one is keen to add a lot of risk into year-end and books shut by 15 December. The discussion will be totally different at the start of 2020, and then maybe we’ll see one or two a month if things go well.”

Citi retained its position as market leader last year, according to survey respondents, with an estimated 40-45% of business. But this is down from its 60% prior dominance, as BNP Paribas and JP Morgan closed the gap with 20-25% each. Goldman Sachs, Morgan Stanley and Nomura make up the remaining market share.

Citi was not active in five-year bespoke tranches in 2019, add sources. This part of the market was instead shared between the chasing pack of BNP Paribas, JP Morgan and Nomura.

Jefferies is anticipated to join the pool of bespoke tranche arrangers in 2020, with sources saying the firm is likely to focus on five-year deals.

Back in April, bespoke tranche issuance was tipped to hit $100 billion for the full year after a heavy first quarter. But activity slowed over the summer and has failed to pick up greatly since, agree several sources. They blame this largely on tightening credit spreads and falling correlation, the reversal of which could help volumes in 2020, if catalysts for volatility re-emerge.
CSO issuance volume
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