By the Numbers

Warehouse update

| February 2, 2024

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.

A strong market for issuing CLOs has dialed up the turnover in CLO warehouses. More warehouses closed in January after issuing CLOs than opened, according to US Bank. CLO warehouse activity signals a much healthier market for managers than a year ago.  Business services and technology remain the two largest industries held by warehouse portfolios, while healthcare has slid off managers’ top allocation list.

Half of the market comprises warehouses outstanding less than 9 months

Most CLO warehouses provide short-term financing for managers to build loan portfolios before issuing a new CLO. A year ago, almost two-thirds of warehouses under US Bank administration had been outstanding for more than nine months, but by the end of 2023 this proportion fell to 50% (Exhibit 1).  Although the share of aged warehouses has climbed from 44% since December, it is mainly due to a decrease in outstanding warehouses under US Bank administration.  In December, the bank reported 12 new warehouses while 16 closed after issuing CLOs.  Warehouses outstanding for more than nine months stand at 38, including seven that are evergreen.

Exhibit 1: Warehouse market had a steady decline of aged warehouses in 2023

Notes: Warehouse data are shown by US Bank reporting period, 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 represents the number of warehouses in each age category relative to total warehouses administrated by US Bank.  US Bank is estimated to have a 40% -50% market share as a warehouse administrator.
Source: US Bank, Santander US Capital Markets LLC.

Large industry exposure in warehouses has evolved over the year

The top five industry concentrations in CLO warehouses increased from 31% to 35.8% during 2023.  CLO managers have been most exposed to loans in the business services and technology industries (Exhibit 2).  Energy represents the third-largest sector in warehouses today, followed by manufacturing and project finance.  By contrast, loans in healthcare, transportation, and technology services had dropped from managers’ top allocations over the year.

Exhibit 2: Business services and technology are the two largest sectors in warehouses

Notes: Warehouse data are shown by US Bank reporting period, reflecting activity in the prior month.  Data include both broadly syndicated loans and middle market loan CLO warehouses.  US Bank is estimated to have a 40% -50% market share as a warehouse administrator.  Industry classifications are based on Moody’s reporting.
Source: US Bank, Santander US Capital Markets LLC.

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

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