By the Numbers
The clock keeps ticking on CLO warehouses
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.
The share of CLOs apparently stuck in the warehouse remained high through April, based on the latest report from US Bank, the largest US CLO warehouse administrator. The biggest uptick came from warehouses aged nine months or more, suggesting a growing number likely to come under pressure as they approach the end of their warehouse term this summer. Recent deal structure and interest from warehouse providers in syndicating their exposure also suggest growing pressure.
Warehouses open for three months or less rose from 26 in March to 27 in April, with the share both months at 24% (Exhibit 1). Warehouses open between three months and nine months dropped from 65 to 57 month over month, representing 51% of outstanding warehouses. And warehouses aged nine months or more increased from 19 to 28 for a 25% share (see An aging supply of CLOs builds up in the warehouse).
Exhibit 1: Warehouses aged three months or more now make up 76% of the total
Note: Warehouse data is shown for the reporting month, reflecting activity the month before.
Source: US Bank, Amherst Pierpont Securities
With a typical CLO warehouse having a 12-month term, many of these aging warehouses will likely come under pressure to issue, inject equity or liquidate in the second half of the year. The recent round of deals with short non-call and reinvestment periods or static pools—both means of tightening debt spreads and lowering the cost of funds—suggest some pressure is already building. And some warehouse providers reportedly have looked to reduce risk on existing commitments by syndicating their exposure.
The total number of CLO warehouses administered by US Bank increased by two month-over-month. Eleven new warehouses opened and nine closed (Exhibit 2). In May, 14 new CLO deals have priced so far with total debt of $6.4 billion.
Exhibit 2: Total warehouses administered by US Bank rose by two in April
Note: Warehouse data is shown for the reporting month, reflecting activity the month before.
Source: US Bank, Amherst Pierpont Securities
Traded par, measured by both aggregate and average basis, has declined modestly month-over-month. The average April traded par at $221 million remains elevated compared to the monthly average of $191 million in 2021 (Exhibit 3).
Exhibit 3: The average traded par balance in warehouses remains high
Note: Warehouse data is shown for the reporting month, reflecting activity the month before.
Source: US Bank, Amherst Pierpont Securities
Caroline Chen
caroline.chen@santander.us
1 (646) 776-7809
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