Global CLO market on pace for year of historic issuance

So hot is issuance that managers, investors, lawyers, bankers, and even perhaps financial reporters may want to rethink summer plans. Deals — whether new issues, resets or refinancings — are blazing forward and the calendar is burgeoning with more to come.

“I expect a record year for CLO resets, and high new issue figures that get close to the record year of 2021,” said Lauren Basmadjian, global head of liquid credit at Carlyle. “The forward calendar looks particularly reset heavy.”

A historic year for issuance was hardly in anyone’s forecast for 2024. The CLO market had been in the doldrums for nearly two years, weighed down by soaring inflation and the resulting spike in interest rates that fuelled worries about an economic slowdown and a credit downturn.

It’s not only the US that is thriving. The smaller European market is also set for an historic year. Speaking about European activity, Andrew Lennox, senior portfolio manager for fixed income at Federated Hermes, said: “Given the number of issuances year to date, we see 2024 breaking records for gross new issue volumes if we continue at the same pace.”

Investor interest in the floating-rate asset class has been increasing around the globe, which has been pushing down liability spreads in both the US and Europe. AGL set a fresh low for triple A new issue spreads in the US at 135bps, and Oaktree did the same for new deals in Europe at 130bps.

The summer should see even more investor appetite due to the upcoming scheduled paydowns in July that will return cash to investors. CLO liquidations are also making investors more flush and eager to deploy.

“Triple As have gone from 140bps to 135bps, and they will get even tighter with the July paydowns and CLO liquidations. Investors will have a lot of cash to put to work,” said Palak Pathak, senior portfolio manager in securitised products at TCW.