US CLO primary wrap — January levels hit the market after stale prints kickstarted the year

Charlie Dinning
+Tanvi Gupta

22 January 2024•5 min read

The US CLO market has started the year steady but has yet to take off as some had anticipated. Through the first three weeks of January, there has been $4.5bn of CLO issuance across US and middle-market CLOs. This is $1bn more than in 2023, but the market was projecting a 2021-like year, when there had already been $14.6bn of US and mid-market CLO issuance.

Source: 9fin

There are signs that the market will be flooded with issuance in the near future, however. According to one source, there are around 35 new issues and nine resets in the market as managers look to take advantage of liabilities tightening.

Friday gave us the first glimpse into the current levels for US CLO liabilities as there was one reset, one refi and one new issue.

GoldenTree Asset Management set the triple-A benchmark at 150bps. This is the tightest triple-A print on a five-year reinvestment, two-year non-call CLO since May 2022, according to 9fin data. GoldenTree US CLO 19 also achieved the tightest double-B print (600bps) since before the Russia-Ukraine war began in February 2022.

CIFC Asset Management meanwhile, priced a 5/2 reset with triple-As at 152bps which is the tightest triple-A print on a 5/2 reset since the beginning of the war, also.

And Marathon Asset Management priced a refinancing of Marathon XIV which has one year of reinvestment left to run. The triple-As priced at 138bps, which is the tightest one-year reinvestment refinancing since 2021, according to 9fin data.

GoldenTree’s benchmark of 150bps will be matched by other managers in the coming weeks, sources say, as Oak Hill Advisors and BNP Paribas are working on a new issue CLO that may go inside this level, according to one source familiar with the upcoming CLO.

Other managers in the market with new issue CLOs include Apex, Carlyle, CarVal, Investcorp, Napier Park, TCW and Trinitas, according to sources. Carlyle has gone subject at 153bps on its triple-As, according to marketing materials seen by 9fin and Napier Park is showing its triple-As in the ‘low-to-mid 150bps’.

GoldenTree 19 was the first US CLO this year with a triple-A print that is truly reflective of January levels, sources say. AMMC, Barings, Onex and AGL all priced new issue CLOs before GoldenTree but, according to sources, all four levels were struck in December but did not price until January.

Source: 9fin

Barings and Onex printed at 163bps and AMMC at 168bps. AGL priced at 157bps, which is tighter than other December prints, but wide of January levels.

AGL had a US bank as the anchor investor in its triple-As, according to three sources. US banks have often pushed for extra yield when participating in CLOs in years past, says one source. However, demand for triple-As is very high meaning if an anchor investor searches for extra yield they may not get the allocation.

The tightening in the US CLO market has led to managers touting third-party equity, according to sources, however captive equity funds continue to drive CLO creation.

Liabilities tightening has made the arbitrage slightly more attractive for third-party equity, according to two sources, but assets have also moved: loans are trading up at levels not seen since 2021, which challenges the arb.

One equity investor states that older warehouses that bought loans at more distressed levels offer a more compelling case, but some deals are launching with very little of the portfolio ramped. This means that the portfolio will likely be put together at a high price, 99-handle or so, making the arbitrage less attractive.

CLO redemptions are also helping to drive CLO creation, sources say. The plethora of loan BWICs in recent weeks has offered managers an opportunity to pick up loans. There have been some smaller new issue loans coming to market, but these tend to be over 2x subscribed, according to sources. Calling legacy CLOs also frees up capital that CLO investors can reinvest.

Most of the loan issuance in the market is refinancings/repricings according to sources and our loan pipeline. One source states that 14 loan deals were launched this morning with up to 50 in the market, but with very little net new money.

Mid-market

There have only been two new issue mid-market CLOs this year, Owl Rock XV and Guggenheim MM 2024-7, but that is likely to change in the near future as another four deals are in the pipeline, according to one mid-market investor.

Blue Owl priced its triple-As at 230bps, albeit the manager stuck to its usual style of a low-levered deal with only triple and double-As in the CLO. While Guggenheim priced debt down to the double-Bs and printed its triple-As at 240bps. Sources say that Guggenheim took the majority of the double-B tranche in its CLO.

The demand for mid-market CLOs is very high, sources say, with mid-market offering a good pickup in yield. US CLO market triple As have tightened to 150bps from tights of 170bps in November, while mid-market triple-As have come from 250bps in November and are now closer to 220bps, sources say, with a good chance to go even tighter.

Source: 9fin

One mid-market CLO equity investor says that the arbitrage in mid-market CLOs has been strong enough since the second half of 2023 to invest in, and this tightening makes it even more so. On top of this, unlike in the broadly syndicated loan market, mid-market loans are not tightening yet as the market moves slower than its BSL counterpart.

Last year was a record year for mid-market CLO issuance as volumes totalled $31.4bn, with $28.0bn of that new issuance. This compared to total issuance of $20.8bn in 2022 and $43.6bn in 2021 (but repricings played a large role in 2021 as new issuance was only $22.3bn).

Source: 9fin

Mid-market CLO issuance made up about 25% of CLO issuance in 2023 and sources are expecting the same this year, even as the BSL market bounces back from a down year.

US CLO pricings 01-19 January: