By the Numbers

The highs and lows in CLO warehouses

| January 27, 2023

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 number of CLO warehouses dropped for five consecutive months to finish 2022, according to USBank, but the share of aged warehouses remains high. The number of warehouses open for more than nine months finished last year at 53, more than triple the 2021 average.  Recent improvements in leveraged loan prices and CLO debt spreads may help more managers get out of their warehouses. But without a sign of easing in aged warehouses, spread tightening in the current primary market may have limits and spreads dispersion among managers may continue.

While the share of aged warehouses looks daunting, CLO managers have controlled credit risk by reducing industry concentration in their warehouse portfolios.  The Top 5 industry concentration was nearly 40% at the beginning of 2022 but fell to a new low of 31.7% in December, according to USBank.  It is worth noting that the transportation services industry was an outliner.  The par balance of the sector soared by 28% during December, making it the third-largest industry in all US Bank-administered warehouses.

The number of warehouses opened for more than nine months hit a new high

The total outstanding warehouses dropped by five to 87 during December but the number of warehouses aged more than nine months increased by four to 53, the highest level in 2022 (Exhibit 1).  By contrast, the share of warehouses opened three months or less declined from 35% to 11%, the lowest level in a year.  USBank historically has administered roughly half of all outstanding CLO warehouses in the market.

Exhibit 1:  The share of younger warehouses had a steady decline in 2022

Note: Warehouse data is shown for the reporting month, reflecting activity in the prior month.  Data reflects only warehouse lines administered by US Bank.
Source: US Bank, Amherst Pierpont Securities

Warehouses closed out for CLOs continued to outpace new warehouses

The number of warehouses rolling off into CLOs continued to outpace the number of new warehouses in the last month of the year, a trend that has been seen since September 2022 (Exhibit 2).

Exhibit 2:  The number of outstanding warehouses dropped to a new low

Note: Warehouse data is shown for the reporting month, reflecting activity in the prior month.  Data reflects only warehouse lines administered by US Bank.
Source: US Bank, Amherst Pierpont Securities

The average par balance in warehouses reached a new low in December

The number of outstanding warehouses declined through 2022, and so was the average closing monthly par balance in warehouses administrated by USBank.   The average traded par dropped by an additional $11 million to $158 million in December, the lowest in a year (Exhibit 3). CLO warehouses in all three age buckets experienced the same trend, implying a possible slowdown of buy activities in the warehouses.

Exhibit 3: The average traded par in all CLO warehouses had a steady decline

Note: Warehouse data is shown for the reporting month, reflecting activity in the prior month.  Data reflects only warehouse lines administered by US Bank.
Source: US Bank, Amherst Pierpont Securities

Industry concentrations have been lowered amid rising credit concerns

The Top 5 industries by par balance in CLO warehouses included service, technology, technology services, healthcare, and manufacturing in most reporting periods of 2022.  The Top 5 industry concentration in warehouses fell from 39% to 31.7% through the year, reflecting managers’ increasingly conservative portfolio management (Exhibit 4).

In addition, CLO managers have steadily lowered their exposure to healthcare in warehouses under USBank administration, from nearly 8% to 4.6% over the year.  By contrast, the share of technology loans in warehouses ended the year mostly flat.  It is worth noting CLO managers have been increasing their exposure to transportation services recently with a total of $655 million par balance in warehouses in December, representing a 28% monthly rise.  The exposure to the transportation services loans in warehouses exceeded exposure to both healthcare and technology services at the end of 2022.

Exhibit 4: Transportation servicing has been a rising sector in CLO warehouses

Note: Percentage represents the aggregate loan par balance in one industry over the total par balance in all outstanding warehouses.   Industry concentration in each individual warehouse may vary. Warehouse data is shown for the reporting month, reflecting activity in the prior month.  Data reflects only warehouse lines administered by US Bank.
Source: US Bank, Amherst Pierpont Securities

Caroline Chen
caroline.chen@santander.us
1 (646) 776-7809

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