‘Investor demand is robust despite macro market noise’

Michelle Manuel: While we mainly focus on the US middle market, we also buy European BSL and private CLOs and invest in US BSL when the market dislocates and we can get some convexity. Similarly, we occasionally buy European BSL in the primary, but also mainly in market dislocations.

In the US mid market, while there are positive factors, we have a proliferation of PIK. We don’t love that, but at the moment, managers are disciplined and view it as a manageable tool. I’m referring to that core and lower middle market in this respect. In terms of new entrants, we’ve evolved away from the tier 1s to the middle-tier players. We hadn’t historically done any new entrants into the middle market. More recently, you’ve seen quite a lot. But by new entrants, I want to clarify that while they are new to issuing CLOs, they generally have long-established credit platforms. Kohlberg, as a case in point, has operated in that market for many years, before considering CLOs as an attractive financing tool. We’ve invested in a number of these newer entrants, and we’ve got really good relationships with the teams now. It’s been a very positive development.

CF: CLO technicals have long been strong, but there is chatter about “noise”. Do you still see them as resilient, or are there concerns?

MM: Investor demand is robust, despite what seems to me is a lot of noise in the macro market. While the resilient demand may be true, I can say, anecdotally, we are seeing deals taking a lot more time to conclude. Some transactions we were shown in late August or early September, concluded late in October. On the arranger side, there has been a lot of competition for transactions and, in some cases, there was evidence the arranger banks may have been investing in the transaction to ensure execution. More recently, some of them have stepped back a bit in terms of outright support.