By the Numbers

Higher loan prices and tighter spreads slow new CLO issuance

| June 28, 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. This material does not constitute research.

Higher loan prices and tighter spreads have started to slow the flow of new CLOs into the market as more managers wait to price debt at the spreads required to make CLO equity economics work. With the required spreads only available to a limited set of managers for now, warehouses look likely to continue aging for the next few months.

The total numbers of CLO warehouses open at US Bank dropped from 87 in April to 85 in May, but the biggest change came in the age of those warehouses. April included a substantial 15% of new warehouses open 30 days or less. But new warehouses dropped to 7% in May as more existing warehouses aged into older categories (Exhibit 1).

Exhibit 1: The share of seasoned CLO warehouses rose in May

Note: 6 of the 29 warehouses aged 270+ days are evergreen.
Source: USBank, Santander US Capital Markets.

Managers are facing steadily higher prices and tighter spreads on the loans available to collateralize CLO debt. The price of the average warehouse loans has gone from $98.08 in November to $99.11 in May (Exhibit 2). The average loan spread has gone from 3.85% in November to 3.55% in May.

Exhibit 2: High loan prices, lower spreads

Source: USBank, Santander US Capital Markets.

The market for new CLOs has started to test tighter spreads on debt, with new 5-year non-call 2-year structures pricing ‘AAA’ classes as tight as 135 bp over SOFR. Those spreads so far go only to managers with the broadest investor base, so the warehouse market may continue to age over the next few months as prospective CLO issuers wait for tighter spreads.

Steven Abrahams
steven.abrahams@santander.us
1 (646) 776-7864

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