Loan slump brings managers closer

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Global credit funds & CLO's

July 2020

| Issue 225

Published in London & New York.

July 2020 | Issue 225

Analysis

CLOs

Loan slump brings managers closer

Charlie Dinning

Data journalist

Tanvi Gupta

Head of data journalism

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A 19% slide in new US loan volumes last year has left CLO managers with fewer options in the primary market, and portfolio overlap between US managers has increased to 35.3% on average

Sound Point Capital Management and MJX Asset Management had the highest percentage of their portfolios in common with 69.7% overlap. The New York-based managers also had a higher than average overlap with the market, with MJX at 41.1% and Sound Point hitting 40.0%. MJX was the 11th most productive US CLO issuer in 2019. Sound Point finished in fourth spot.

Car battery producer Power Solutions accounted for the largest common exposure between these managers, with MJX holding $20.5 million across its 2018 and 2019 CLOs as per February trustee reports and Sound Point holding $41 million.

Power Solutions was the 11th most held issuer across our dataset in February, with $850 million of the company’s loan held in CLOs. Credit Suisse Asset Management had the largest exposure ($54.7 million), but the largest CLO manager globally wasn’t buying all large loans. It steered clear of Asurion and Calpine.

Every other US CLO manager that was in the top 10 in portfolio size from 2018 and 2019 was invested in Asurion in February. Ares Management and CBAM joined CSAM in abstaining from Calpine’s debt.

This selectivity helped CSAM register a slightly below average overlap of 35.1% with the rest of the US CLO market. However, it was still the second largest investor in the largest issuer, Altice. CSAM held $156.7 million of the company’s loan, according to its February trustee reports (1.6% of its 2018 and 2019 portfolios).

Octagon Credit Investors was the largest investor in Altice’s debt in February, holding $163.5 million. Octagon and CSAM had a portfolio overlap of 50.8%.

Ares had the largest average overlap with the rest of the market amongst the top ten largest managers at 44.0%. It was only third highest compared to all managers, behind Voya Alternative Asset Management (44.1%) and BlackRock (44.8%).

Two managers that manage triple C-flex CLOs, Ellington Management Group and Z Capital Credit Partners, registered the lowest average overlap with the rest of the US CLO market. Ellington averaged 10.4% and Z Capital sat at 12.1%.

Data includes 2018/19 US CLOs. Bond-flex deals are excluded.
For each pair of managers, the portfolio overlap figure is calculated from a comparison of the weighted average of common issuers across CLOs in the data. Overlap is based on issuer name.
Figures are based on February 2020 trustee reports.
All data has been sourced from CLO-i and Moody’s Analytics.
Fortress Investment Group, Goldman Sachs Asset Management, Morgan Stanley Investment Management and Whitebox Capital Management were excluded.

Methodology

The overlap between US CLO portfolios has risen a little as a drop in loan volumes last year gave managers less room for manoeuvre. Primary institutional loan issuance dropped to $430 billion from $531 billion in 2018 and Creditflux analysis shows that the average portfolio overlap for US CLO managers that closed deals in 2018 and 2019 was 35.3%. The overlap was 34.5% a year ago.

Manager exposures (%) to largest leveraged loans*

*Managers are top 10 based on the size of their portfolios from 2018 and 2019 vintage deals. Loans are largest in our data (see methodology)

CLO manager portfolio overlap: deals effective 2018 & 2019 (%)

Source: CLO–i

Analysis

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