By the Numbers
Rising CLO warehouses signal a healthy pipeline through January
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A jump in the number of CLO warehouses open in January, with nearly half open 90 days or less, suggests a healthy pipeline of deals waiting to come to market. But lower prices on the average outstanding loan may mean some will have to wait longer than expected. That could tap the brakes on a strong start to issuance this year.
The count of warehouses administered by US Bank jumped from 83 in December to 103 in January, the largest single month jump in the last year and a new high water mark (Exhibit 1). CLO issuance in December was relatively light, so some managers may have decided to stay in warehouse into January.
Exhibit 1: Open CLO warehouses jumped in January to a 1-year high
Source: US Bank, Santander US Capital Markets
Fifteen new warehouses opened in January, helping push the share of warehouses open 90 days or less to 48% (Exhibit 2). The share of warehouses opened six months or more dropped to 35%, six percentage points below the average of the last year. Issuance in January was strong, so the numbers suggest deals continued to flow smoothly to market in January.
Exhibit 2: The share of warehouses open 90 days or less rose to 48%
Source: US Bank, Santander US Capital Markets
US Banks latest numbers suggest managers will need steadily tighter debt spreads to take advantage of the loan market. The spread on the average warehouse loan declined 8 bp in January to 319 bp (Exhibit 3).
Exhibit 3: The weighted average spread on warehouse loans declined again
Source: US Bank, Santander US Capital Markets
Warehouse managers extended the average life of their portfolio in January to 5.27 years, adding a bit of spread duration risk (Exhibit 4).
Exhibit 4: Loan weighted average life rose to 5.27 years
Source: US Bank, Santander US Capital Markets
Despite tighter loan spreads, loan prices declined from $99.44 in December to $99.17 in January (Exhibit 5). Managers may have traded into discount loans to pick up spread.
Exhibit 5: Despite tighter spreads, average loan price fell
Source: US Bank, Santander US Capital Markets
Finally, managers in January continued to diversity with the share of portfolio concentrated in the five largest industries edging lower from 34.8% in December to 34.3% in January.
Exhibit 6: Managers continued to diversity with Top 5 industry share down
Source: US Bank, Santander US Capital Markets
Loan and debt spreads have since widened through February and most of March, so many of the deals in warehouse in January may be looking at mark-to-market losses on existing holdings. Sponsors may choose to add equity to their deal to help get it to market or may choose to wait for a market rebound.
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