By the Numbers

An improving warehouse picture lifts a cloud over CLOs

| December 1, 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 new CLO warehouses has jumped in the last two months, according to US Bank, implying a resilient primary CLO market. And the share of warehouses open for more than nine months has continued to decline. The falling share of aged warehouses lifts some of the supply cloud that has hung over the market for large parts of this year.

The number of new warehouses opened in the last two reporting periods has exceeded the number of warehouses closed for CLOs, according to US Bank, reversing the trend in the summer.  As a result, the total warehouses under US Bank administration rose to 87 from 71 in the September reporting period (Exhibit 1).

Exhibit 1: New warehouse activity has been very robust recently

Notes: Warehouse data are shown by reporting month, reflecting activity in the prior month.  Data cover both broadly syndicated loans and middle market loan CLO warehouses administrated by US Bank.
Source: US Bank, Santander US Capital Markets Inc

The overhang of aged warehouses has largely dissipated. CLO warehouses open for more than nine months dropped from 57 at the beginning of this year to the current 37, representing 43% of all warehouses administered by US Bank (Exhibit 2).  Out of the 37 aged warehouses, seven are reported to have evergreen terms.

Exhibit 2: Aged warehouses dropped to a twelve-month low

Notes: Warehouse data are shown by their 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 and are warehouses administrated by US Bank only.  US Bank is estimated to have a 40% -50% market share as a warehouse administrator.
Source: US Bank, Santander US Capital Markets LLC.

The overhang of aged warehouses through large parts of this year left some investors worried that any improvement in deal economics could bring out a surge in supply. The recent sharp tightening in CLO spreads along with earlier decisions to clear warehouses by issuing deals with short reinvestment periods has largely solved the problem.

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

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