Global credit funds & CLO's
October 2023 | Issue 258
Published in London & New York.
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October 2023 | Issue 258
Analysis
CLO primary
Primary market roars into life
Tom Davidson
Managing editor
After a quiet first half of the year, CLO activity has increased since the beginning of August, on both sides of the Atlantic — and the rise in issuance is predicted to continue for the rest of 2023
The primary CLO market pickup that started in August continued strongly in September, both in Europe and the US. Although the overall direction was the same on both sides of the Atlantic, the type of activity was quite different.
In Europe, the story in September was of consistency. All six deals that priced in the first three weeks of the month (before this issue went to press) were new vanilla CLOs. All feature roughly 4.5-year reinvestment periods. And all priced with the triple As in a fairly narrow range, from Euribor +168bp to Euribor +175bp.
By contrast, the US market saw a wide variety of deals in September. In those same three weeks until 22 September, 20 US BSL CLOs priced, including 12 new deals. That haul included two deals from debut managers joining the CLO market (Katayama and Wellington Management), after Warwick Capital priced its first CLO in mid-August.
The market also saw a trend for deals with short-dated paper. Palmer Square and BlackRock both priced CLOs with one-year reinvestment periods, and Nuveen printed a Symphony CLO with a two-year reinvestment period. These CLOs saw senior liabilities in the mid to high 150s.
Primary triple A spreads (bps)
Source: Creditflux
Tiering tightens up from summer
Refis for first tier managers seem to be pricing a little wider at Sofr+163bp, with the rest of the issuance ranging from 170bp to 205bp. That still represents a tightening of the manager tiering seen earlier in the summer.
Sources are now talking about a pickup of activity in the primary loan market, which should support continued new issuance in the US for the rest of the year.
163bp
In the US, refis for first tier managers are pricing at Sofr+163bp
Reset and refi activity increases
Three resets and three refis also priced, all but one from the 2022 vintage. Deals from that period, especially from the summer onwards, printed with very wide liabilities, and managers have been quick to lock in spread tightening. According to market sources, we can expect to see a lot more of that trend over the next few months. Elmwood turned heads by refinancing a 2020 CLO, suggesting liabilities have now tightened enough to see reset and refi activity in older vintages as well.
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