By the Numbers

A healthier picture of CLO warehouse activity

| June 23, 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 CLO market continues to make progress in clearing out older warehouses and restocking with newer ones. Newer warehouses make up a rising share of the total outstanding while keeping the number outstanding fairly flat. Warehouse managers continue to improve diversification in the financed portfolios and reduce exposure to sectors showing signs of stress.

The share of aged warehouses declined from a recent peak of 65% to 55%

The overhang of aged CLO warehouses continues to abate, according to the latest US Bank CLO warehouse report. The share of warehouses outstanding for more than nine months through June fell by two percentage points to 55% (Exhibit 1). The share aged between three and nine months stayed flat at 14%. And the share of newer warehoused aged three months or less rose by two percentage points to 31%

Exhibit 1: The share of aged warehouses fell for three consecutive months

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.  Share is calculated by the count of warehouses in each age category.  Data reflect warehouse lines administrated by US Bank only.
Source: US Bank, Santander US Capital Markets LLC

The number of outstanding warehouses has remained stable this year

Although warehouse closures have surpassed new openings in most months this year, overall outstanding warehouses under US Bank administration have stayed relatively flat (Exhibit 2).

Exhibit 2: Total warehouses outstanding fell by 28 in a 12-month period

Note: Warehouse data are shown for the reporting month, reflecting activity in the prior month.  Warehouse activity in 2023 includes reporting periods from Feb 2023 to June 2023. Data reflect warehouse lines administrated by US Bank only.
Source: US Bank, Santander US Capital Markets LLC

Exposure to healthcare loans was reduced to below the top five

CLO managers have kept their Top Five industry exposures in warehouses around 30% this year, down from 35% a year ago. In addition, managers have adjusted industry exposures in warehouses. With recent increases in negative rating actions in the healthcare sector, exposure to healthcare loans was no longer in the Top Five as of the latest reporting period. By contrast, managers have increased their exposure to the energy and transportation services industries (Exhibit 3).

Exhibit 3: CLO managers continue to diversify risk and lower concentration

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

In summary, the most recent CLO reports from US Bank have shown a much more stable market this year, with continued progress in clearing the overhang of aged warehouses. While CLO arbitrage remains challenging in the primary market, an improving warehouse market may help relieve the pressure on spreads.

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

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