United States: US CLO Market

2016 US CLO Market Review

Following a glacial start to the year and significantly depressed H1 issuance levels, which resulted in significant downward revisions by bank arrangers to their 2016 volume predictions (as low as $35 billion for the full year), 2016 ended on a more positive note than expected. US CLO issuance ended the year at approximately $72 billion across 156 deals, with nearly $50 billion in additional issuance via refinancing/reset transactions across 96 deals.

The busiest months in terms of activity were October, November and December which accounted for $26.21 billion in CLO primary issuance and approximately $37 billion in refinanced or reset deals. In contrast, H1 issuance totalled $27.12 billion from 66 deals and in 2015 refinancing volume was less than $10 billion in total. Bank arranger predictions, which at the start of 2016 were around the $70 billion mark, held true despite the downward revisions in March 2016 to $35-50 billion.

The onset of risk retention on 24 December 2016 accounted for the increased activity seen in November and December as managers sought to issue new deals, or refinance or extend existing CLOs in advance of the deadline and thereby avoid the 5% required holding for deals issued or refinanced after the deadline.

Maples Fiduciary's "Risk Retention Survey of US CLO Managers – Part II" released in December confirmed that 89% of CLO managers already had a risk retention strategy in place or ready for implementation imminently. A summary of the survey is included on page 11.

In terms of spreads, the year was bifurcated as the first six months saw a gradual widening of primary spreads. Conversely, H2 welcomed spread tightening to levels last seen in 2012, providing more favourable conditions to attract equity buyers. AAA pricing came down from the low 150bps mark to low 140bps by the end of the year.

Although defaults in credits related to oil and gas, mining and minerals were reasonably prevalent in 2016, other sectors such as healthcare, technology and retail, which had been expected to suffer defaults, saw a lot less stress than anticipated. Concern relating to credits in those sectors, however, does continue into 2017.

2016 saw a total of three BSL debut CLO 2.0 managers, namely Newfleet Asset Management (owned by Virtus), Teachers Advisors (an affiliate of insurance giant TIAA Global Asset Management) and Guardian Life. In the middle market, Churchill Asset Management, Brightwood and Alliance Bernstein all issued their first middle market 2.0 CLOs. This demonstrates continued confidence in the product from new entrants and the wider financial services market.

In 2016 94 different US managers priced one or more US CLOs across a total of 252 deals, which included 96 refis, across 247 Cayman Islands issuers and five Delaware issuers. That compared with 219 priced US CLOs in 2015 across 212 Cayman Islands issuers, six Delaware issuers and one Irish issuer. Carlyle, Credit Suisse Asset Management, Golub and GSO/Blackstone priced four or more new US CLOs in 2016.

Each of Bank of America, BNP Paribas, Citigroup, Credit Suisse, Goldman Sachs, Jefferies, J.P. Morgan, Morgan Stanley, Natixis and Wells Fargo have priced 12 or more deals (including refis and resets) in H2 2016, with Citigroup leading the pack.

Average deal size in 2016 was in the low $400 million range, compared with a $500 million median CLO size in 2015. At the end of the year we estimated that there were about 50 warehouses still open in the CLO pipeline, compared with the 60-70 open at the start of 2016.

For a complete list of the H2 2016 priced US CLOs, see Appendix 1.

US CLOs – What's in store for 2017?

Bank arrangers are predicting between $50-70 billion in issuance for 2017, with Nomura and J.P. Morgan predicting volumes at the lower end ($50-60 billion) and Morgan Stanley and Wells Fargo more bullish at around the $70 billion mark. The market anticipates a reduction in the number of managers issuing new deals as a result of risk retention and an increase in manager mergers and acquisitions. Predictions range for between 40-70 active managers remaining at the end of 2017, and the year started off with announcements that Marble Point (backed by Eagle Point) had acquired American Capital and New York Life Investments agreed to acquire a majority stake in Credit Value Partners. However, as mentioned previously, new entrants in the manager space (and we are aware of a number of others) will more than likely lessen the impact of any such manager contraction.

Some market participants are predicting, and we are already seeing, new issue spreads tightening with current deals already getting close to 130bps on the AAAs. We believe that AAAs will continue to tighten and could get into the low 120bps by year-end. At the time of writing, Octagon Investment Partners 30 set the lowest AAA new issue print this year at 132bps. Refinancing and repricings account for the greatest primary market activity so far in 2017 with nearly $8 billion in CLO repricings in January alone as managers and arrangers take advantage of tightening spreads and the Crescent Capital's SEC no-action letter. At the same time, the new issue market remains sluggish as managers continue to struggle to source new collateral at attractive prices. Making the arbitrage work on new deals is difficult at the moment which has not been helped by a wave of repricings at the primary asset level. Not only have the primary repricings been aggressive but the reductions appear to bare very little correlation to the credit quality of the obligor with spreads dropping significantly for all borrowers. This will continue to make issuing new CLOs a challenge for the foreseeable future, leading to several managers contemplating resets to extend the reinvestment period of existing CLOs. On the positive side of things, so long as dollar funding costs are not prohibitive, it is anticipated that Asian investors will continue to finance a substantial part of the senior CLO tranches and managers will continue to find themselves on roadshows in Korea and Japan, especially as certain Japanese banks extend their 'approved manager' lists and other investors increase their CLO investment allocations.

Many are hopeful that President Trump will take a more favourable approach when it comes to the regulation of the capital markets and some pundits have even suggested that parts of Dodd Frank could be repealed, even going so far as to suggest that CLOs may be exempted from the risk retention requirements. The view of many of the participants at the Opal CLO Summit at Dana Point in California in early December was very much that the market has positioned itself to deal with the risk retention requirements in the US, regardless of what President Trump may or may not do. Either way, it is pretty clear that the US will not look to embark on further burdensome regulation unlike the regulators in Europe who are now eyeing a possible move to a 10% risk retention requirement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions