By the Numbers

Mixed signals in CLO warehouses

| March 3, 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 share of CLO warehouses aged nine months or more reached a new high of 65% in February, according to US Bank. While the upward trend remains concerning, a steady transition from warehouse to CLO, declining warehouse balance and improving diversification are positives.

Nearly two-thirds of warehouses have been open for more than nine months

The number of warehouses outstanding for more than nine months reached 57 in February, a new high in the last two years.  In contrast, the share of younger warehouses has declined steadily, with the proportion of warehouses opened within the last three to six months falling to 20%, the lowest level since March 2021 (Exhibit 1).  Historically, US Bank has administered roughly half of the market’s outstanding CLO warehouses.

Exhibit 1: The share of younger warehouses continues to fall

Note: Warehouse data are shown for the reporting month, reflecting activity in the prior month.  Data reflect warehouse lines administrated by US Bank only.
Source: US Bank, Santander US Capital Markets LLC

The total number of warehouses dropped by 21% in nine months

In most reporting periods over the last nine months, warehouses that issued new CLOs and consequently closed outnumbered new warehouses.  As a result, the number of outstanding warehouses fell by 21%, from 112 in June to 88 in February (Exhibit 2).

Exhibit 2: The proportion of traded bonds on BWIC across ratings is comparable

Note: Warehouse data are shown for the reporting month, reflecting activity in the prior month.  Data reflect warehouse lines administrated by US Bank only.
Source: US Bank, Santander US Capital Markets LLC

The average par balance in warehouses stayed low

In line with the declining trend in the number of warehouses outstanding, the average par balance in warehouses fell by $62 million over the last nine months to $160 million in February (Exhibit 3). The average par balance in the warehouses aged three months or less, on the other hand, doubled in a month to $153 million, reflecting a possible increase in buying activity in the new warehouses.

Exhibit 3: The average traded par in warehouses continue to decline

Note: Warehouse data are shown for the reporting month, reflecting activity in the prior month.  Data reflect warehouse lines administrated by US Bank only.
Source: US Bank, Santander US Capital Markets LLC

Healthcare exposure decreased amid managers’ diversification efforts

Over the course of a year, the top five industry exposures in all warehouses under US Bank administration decreased from 38% to 30.8%.  While exposure to each of the top five industries declined over the year, healthcare exposure declined the most from 7.5% to 4.6%.  CLO managers, on the other hand, have recently increased their exposure to transportation services and the energy sector.  In the February reporting period, both sectors were among the top five (Exhibit 4).

Exhibit 4: CLO managers’ diversification efforts continue

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 warehouse lines administrated by US Bank only.
Source: US Bank, Santander US Capital Markets LLC

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

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