By the Numbers
CLO warehouses continue to lower their risk
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The CLO warehouse market this year has made progress in clearing out older warehouses, with the share of aged facilities under US Bank administration coming in at 52% in the latest reporting period. Warehouse closures have exceeded new openings through most of the year. And while warehouse exposure to the top five industries lately has increased to 32.7%, exposure to energy and manufacturing has overtaken the weaker healthcare sector on the list.
The share of aged warehouses has stabilized
Warehouses outstanding for more than nine months dropped from a 12-month high of 57 in the February reporting period to 37 in September, with the aged share in of total warehouses stabilizing around 50% (Exhibit 1). Of the 37 aged warehouses, seven are in the evergreen term, according to the US Bank report. A rising share of aged warehouses in 2022 reflected falling loan prices, which left many financed portfolios underwater and kept many warehouses from converting into CLOs. A rally in loan prices this year has helped solve the problem.
Exhibit 1: The share of aged warehouses fell to 52% lately
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. US Bank historically has 50% market share.
Source: US Bank, Santander US Capital Markets LLC
Warehouse exits continue to outpace warehouse openings
Warehouse exits have outpaced new warehouses under US Bank administration for three consecutive reporting periods (Exhibit 2). Most warehouse exits are for CLO issuance, according to US Bank. For the September reporting period, nine warehouse exits were for CLO new issuance, and only one was terminated.
Exhibit 2: More warehouses exited for CLO issuance
Note: Warehouse data are shown for the reporting month, reflecting activity in the prior month. Data reflect warehouse lines administrated by US Bank only. US Bank historically has 50% market share.
Source: US Bank, Santander US Capital Markets LLC
The top five industry exposure has stayed below 35%
CLO managers have recently reduced their exposure to the weaker healthcare sector with a rising allocation to the energy and manufacturing industries. The overall top five concentration has been maintained below 35% in the past 12 reporting periods.
Exhibit 3: Managers have changed industry allocation in warehouses
Note: Warehouse data are shown for the reporting month, reflecting activity in the prior month. Data reflect warehouse lines administrated by US Bank only. US Bank historically has 50% market share.
Source: US Bank, Santander US Capital Markets LLC
Overall, warehouses continue to trip risk. The US Bank data also shows a declining number of total outstanding warehouses, which may bring technical support to the CLO spreads going forward.
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