CLOs Set Record With Annual Sales Topping $124 Billion
(Bloomberg) -- Sales of U.S. collateralized loan obligations have hit an all-time high, according to data compiled by Bloomberg News.
A $609 million CLO for the Carlyle Group LP sold today via Citigroup Inc. pushes issuance for the year to $124.5 billion, pushing volume over the $124 billion haul in 2014 with more than a month to spare.
The market has been buoyed by higher demand for floating-rate debt and leveraged loans as rates rise. And in April, a U.S. appeals court effectively released CLO managers from risk-retention rules, helping to boost sales.
Read more: Wall Street's Hottest Debt an Investor Haven as Rates Rise
Even with this year's sales surge, several banks had expected more, and had to revise their first 2018 CLO issuance projections lower. That's because widening spreads created a challenging arbitrage with leveraged loans, the underlying collateral for the deals.
Wells Fargo & Co. lowered its year-end projection in October to $135 billion from $150 billion, arguing that wider AAA spreads and the heavy sales calendar may have led issuers to push fourth-quarter business to the first quarter of 2019.
Most estimate CLO sales will be lower next year. Nomura Holdings Inc. expects $110 billion while Morgan Stanley forecasts $90 billion. Both banks cited less investor demand for the equity portion of CLOs, as well as challenges sourcing loan collateral.
--With assistance from Charles Williams.
To contact the reporter on this story: Adam Tempkin in New York at atempkin2@bloomberg.net
To contact the editors responsible for this story: Christopher DeReza at cdereza1@bloomberg.net, Faris Khan
©2018 Bloomberg L.P.
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