By the Numbers

Latest warehouse picture shows improvement

Caroline Chen | April 21, 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. This material does not constitute research.

The number of warehouses opened and then closed to print CLOs surged in April, according to US Bank, mirroring the latest steady issuance in the CLO primary market. While the number of warehouses open for more than nine months remains elevated, their share of total outstanding warehouses has dropped from its recent peak. Additionally, the average par balances in the oldest warehouses have continued to decline and the Top 5 industry exposures in all warehouses under US Bank administration fell under 30% for the first time in a year.

A small decline in aged warehouses but pick up in new activity

The number of warehouses outstanding for more than nine months declined by two in April to a total of 54, accounting for 63% of total warehouses under US Bank administration (Exhibit 1). In contrast, the number of warehouses opened for less than 3 months increased by three to a total of 16 in the same period. Historically, US Bank has administered about half of the market’s outstanding CLO warehouses.

Exhibit 1: The share of aged warehouses stayed above 60%

Note: Warehouse data are shown for the reporting month, reflecting activity in the prior month. Data include both broadly syndicated loans and middle market loan CLO warehouses. A few warehouses in the 270D+ bucket may have evergreen terms. Data reflect warehouse lines administrated by US Bank only.
Source: US Bank, Santander US Capital Markets LLC

Warehouse closures outpaced openings most of the time in the past 12 months

According to US Bank, an average of eight new warehouses opened each month in the past 12 months (Exhibit 2). But thirteen warehouses opened in the most recent reporting period, the most in the last 12 months. By contrast, an average of 10 warehouses closed monthly in the same period, with 14 warehouses closed for CLOs in April. The number of warehouses closed for CLOs exceeded the new warehouses opened in eight of the past twelve months, a trend echoing the robust new issue activity seen in the CLO primary market.

Exhibit 2: The total number of warehouses declined by 26 in a 12-month period

Note: Warehouse data are shown for the reporting month, reflecting activity in the prior month. Data include both broadly syndicated loans and middle market loan CLO warehouses. Data reflect warehouse lines administrated by US Bank only.
Source: US Bank, Santander US Capital Markets LLC

The average par balance in aged warehouses has continued to decline

The average par balance in warehouses under US Bank administration fell by 25% to $165 million in a trailing 12-month period. The average par balance increased 34% for young warehouses that have been outstanding for less than 3 months, but fell 47% to $176 million in April for those that have been open for more than nine months (Exhibit 3). The decline of the average par balance in aged warehouses may imply managers have been actively reducing their risk exposure.

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

Note: Warehouse data are shown for the reporting month, reflecting activity in the prior month. Data include both broadly syndicated loans and middle market loan CLO warehouses. Data reflect warehouse lines administrated by US Bank only.
Source: US Bank, Santander US Capital Markets LLC

Top 5 industry exposure in warehouses dropped below 30%

The top five industry exposures in all warehouses under US Bank administration have declined from 38.4% to 29.6% in the past 12 months. Exposure to the healthcare industry declined the most, from 6.5% to 4.1% at the end of the latest reporting period. CLO managers, on the other hand, may have increased their allocation to energy credits. Exposure to the energy sector represented 5.6% of total warehouse par balance in April (Exhibit 4), the third largest sector in outstanding warehouses. By contrast, both the manufacturing and technology services sectors dropped out of the top five exposure lists in recent reporting periods.

Exhibit 4: A lower exposure to the top five industries in 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 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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