CLO pace light, deal pipeline remains full; AAAs hold at Libor plus 145 bps-150 bps area

By Cristal Cody

Tupelo, Miss., Dec. 11 - CLO primary activity stayed muted on Wednesday with a few U.S. and European deals expected before the holidays, according to market sources.

The deal pipeline stands at about $14 billion, though many CLO transactions are expected to be pushed back to early next year, sources said.

"It's been pretty dead," one source said. "It dried up last week. We may see a couple of deals sneak through, but I don't think we'll see much through year-end."

New issue AAA tranches are "doing actually OK," a source said.

CLO AAA-rated notes are holding at the Libor plus 145 basis points to Libor plus 150 bps area, the market source said.

Markets gauge rule

Market participants continued on Wednesday to study the Volcker Rule after the final rules were issued the previous day and gauge how the restrictions will impact CLO issuance.

"It's been a long time in coming," one informed source said. "For the most part, [many] have already adjusted to the new rule."

The Federal Reserve, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the U.S. Commodity Futures Trading Commission released the final rules on Tuesday.

The federal agencies released a notice on Aug. 28 of the proposed revised rules first issued in 2011 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The public comment period on the requirements expired on Oct. 30.

The final rules prohibit banks from short-term proprietary trading and impose limits on banks' investments in hedge funds or private equity funds.

The final rules are effective April 1, 2014. The Federal Reserve announced it would require compliance by banking organizations by July 21, 2015.

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