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. This material does not constitute research.
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
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2024 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
