By the Numbers
Warehouse tally points to heavy flow of CLOs ahead
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A rising tally of CLO warehouses points to heavy issuance of new deals early next year, according to the latest CLO warehouse report from US Bank. The bank opened 15 new facilities in November to bring the total administered to 100, the high mark of the year. Many of these warehouses should lead to new deals in the next few months.
Total warehouses administered by US Bank rose by eight in November, with 15 new ones opening and seven existing warehouses taken out by CLO deals. The count has rebounded significantly since June, when US Bank had only 73 open. The tally can reflect both changing market activity and changing market share for US Bank, one of the largest warehouse administrators.
Exhibit 1: CLO warehouses administered by US Bank rise to 100
Source: USBank, Santander US Capital Markets
The current mix of warehouses by age suggests CLO managers continue to smoothly take deals from warehouse to market. As of November, 38% of warehouses had been in place 90 days or less, similar to the share over the last six months (Exhibit 2). But only 34% of current warehouse have been in place 180 days or more, the lowest share of the last six months. Few deals are getting stuck in the warehouse either by need for new equity, tighter debt spreads or other factors.
Exhibit 2: The mix of warehouses by age suggests a smooth path to market
Source: USBank, Santander US Capital Markets
The rising count and apparently smooth transition to market likely reflects improving deal economics. The weighted average spread on loans has stabilized around 3.36% since September (Exhibit 3). Average spreads on ‘AAA’ CLO debt meanwhile have tightened by an estimated 12 bp over that period, based on Palmer Square indices, improving projected net cash flow to equity.
Exhibit 3: Weighted average spread on loans has stabilized while debt tightens
Source: USBank, Santander US Capital Markets
Equity in current CLOs will have to earn its return primarily through coupon. The weighted average price of a loan in warehouse closed November at $99.38, leaving little room for price appreciation (Exhibit 4).
Exhibit 4: A high weighted average loan price leaves little room for price gains
Source: USBank, Santander US Capital Markets
CLO warehouse managers have generally reduced the risk of their portfolios in recent months. The weighted average life of loans has dropped to 5.19 years, down 0.2 years since a peak in September (Exhibit 5). The shorter average life reduces loan portfolio spread duration.
Exhibit 5: A declining weighted average life for warehouse loans
Source: USBank, Santander US Capital Markets
And warehouse managers have also cut their loan portfolio exposure to the Top 5 industries to 36.7%, resuming a trend lower to lower concentration after a spike higher in October (Exhibit 6).
Exhibit 6: Top 5 industry concentration resumes its decline in November
Source: USBank, Santander US Capital Markets
With some new 5NC2 ‘AAA’ CLO debt now testing margins of 125 bp over 3-month SOFR, many loan portfolios building up in warehouses over the last few months should have good incentives to come to market. The tally of active warehouses also looks likely to build, setting the stage for an active primary market in early 2025.
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