Worldwide: The CLOser – February 2019

Last Updated: 27 February 2019
Article by Maples Group

2018 was a record breaking year for US CLO primary issuance recording over $128 billion of new issuance, $4.7 billion more than 2014. Add in refis and resets, the total US CLO issuance in 2018 hit $250 billion. Below is a snapshot of some of the highlights of 20182:

  • New issuance totalled $128 billion from 241 deals and 111 different managers compared to $118 billion from 212 deals and 95 different managers in 2017.
  • Refi and reset activity accounted for another $122 billion in issuance from 316 CLOs.
  • AAA pricing started the year at around 100-110 and ended the year around 120-130 with spreads widening significantly by the end of 2018.
  • LSTA action succeeded in the US Court of Appeals for the DC Circuit on 9 February 2018 starting the end of the era for US risk retention and open market CLOs.
  • Five new broadly syndicated loan managers (CarVal Investors, Kayne Anderson, Partners Group, Post Advisory Group and PPM America) and five new middle market managers (Bain Capital Specialty Finance, Deerpath, GSO Capital Partners, Guggenheim and Vista Credit Opportunities Management) launched CLOs in 2018. The Maples Group CLO team in the Cayman Islands and Delaware assisted with 60% of these new US CLO platforms.
  • Amherst Pierpont priced its first new issue deal for Z Capital having already refinanced a deal for them in December 2017.

2019 Outlook

2019 started fairly slowly with pipeline refis and resets pushing out from payment dates in December and January to March and April and new issue pricing taking until the week of 21 January to kick off.

The first new issue deals to price in 2019 were PGIM's Dryden Senior Loan Fund 75 arranged by Jefferies with less than one year reinvestment period and ArrowMark Partners' Apres Static CLO 1 arranged by J.P. Morgan, both on 23 January. These were followed a day later with GoldenTree's GLM US CLO 4 arranged by Morgan Stanley and CBAM's CLO 2019-9 arranged by Barclays. Dryden 75 is due to close on 27 February 2019 and is the second short CLO issued by PGIM in the past couple of months utilising the print and sprint strategy, and GoldenTree's GLM US CLO 4 features a five year reinvestment period with AAAs at 130bps.

Indeed, print and sprint deals appear to be back in vogue with several print and sprint CLOs pricing in the past couple of months and more in the pipeline. Managers are seeking to take advantage of opportunities in the underlying credit market to get deals away quickly.

The first middle market refi of 2019 also priced on 25 January 2019. Fortress Credit Opportunities VII $700 million middle market CLO arranged by Natixis with AAA pricing at 160bps over LIBOR compared to Deerpath Capitals December 2018 MM CLO where AAA pricing was at 170bps.

Headwinds in the form of Japanese risk retention ("JRR") are currently being reflected in OC risk factors but there is a hope and expectation that the Japanese regulators will follow the US and exempt open market CLOs.

There is an expectation that middle market issuance will continue to increase in 2019. With five new managers in 2018 and one already slated to debut in 2019 (Owl Rock Capital Partners), this sector of the CLO market looks buoyant. Middle market issuance has steadily increased in recent years, accounting for 11.4% of the overall market in 2016, 12% in 2017 and 12.6% in 2018. If JRR comes into effect without an open market CLO exemption, then middle market CLOs, which already meet risk retention requirements, could benefit, especially as Japanese investors have started to permit and increase allocation to these deals.

With several new managers in the pipeline, the return of managers such as AIG to the market at the end of 2018 and PPM America earlier in 2018, and new warehouses being set up in early 2019, we expect that, in spite of some contraction on 2018 levels, 2019 will remain a solid year and in line with the bank arranger predictions for new issuance of $100-110 billion and $100 billion for refis and resets.

Looking forward to 2020, there is definite uncertainty given some of the global macroeconomic conditions currently affecting the markets which, coupled with increased underlying collateral volatility, some argue may lead to an economic slowdown. Whether or not there will be a full blown recession or merely a tightening of belts remains to be seen.

The Maples Group CLO team looks forward to working with our friends and colleagues in the CLO market to make 2019 another successful year for the industry.


1 Data in this publication is derived from a variety of sources, including the Maples Group, Structured Credit Investor, LCD, Leveraged Loan, Creditflux, Moody's, S&P, Fitch, Irish Stock Exchange and Central Bank of Ireland.

2 Sourced from LCD, Wells Fargo reports, Creditflux and SCI.

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