By the Numbers

Overhang from aged CLO warehouses continues

| August 19, 2022

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 pressure on the CLO market from deals in aging warehouses continued through July. Although CLO spreads have tightened in recent weeks, the overhang of deals available to come to market has likely slowed the process. CLOs remain wider than usual against corporate counterparts with the same rating, and warehouse supply looks like it is part of the story.

CLO warehouses aged 91 days or more climbed to 83% of the total last month, according to the latest report from USBank (Exhibit 1). An increasing share of CLOs have been stuck in warehouses since mid-2021 initially because a flood of deals made it hard to come to market and then this year as wide CLO spreads made the economics of staying in the warehouse look compelling. US Bank shows 46% of warehouses are aged nine months or more, and half of those are aged 12 months or more.

Exhibit 1: An increasing share of CLO warehouses have aged 91 days or more

Note: Percentages may not add to 100% due to rounding.
Source: US Bank, Amherst Pierpont Securities

The overhang of aged warehouses likely keeps CLO spreads from tightening as much as they might otherwise since tighter spreads can easily bring multiple new deals to market. Potential new supply puts a drag on spreads.

Aging warehouses could keep pressure on spreads into next year as more warehouses approach maturity, often after 12 months. CLO managers could see increases in warehouse haircuts or margins at maturity or see warehouse providers ask for more equity or lower balances. Maturing warehouses could spur new supply of loans, CLOs or both.

US Bank serves as warehouse administrator for an estimated 52% of outstanding facilities.

Caroline Chen
cchen@apsec.com
1 (646) 776-7809

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