By the Numbers

Latest warehouse picture shows improvement

| 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.

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

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.

The Library

Search Articles