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Full CLO deal pipeline expected; Wells Fargo raises 2015 forecast; AAAs mostly flat
By Cristal Cody
Tupelo, Miss., Sept. 1 – Despite light CLO issuance over July and August and volatility in the loan market, a strong CLO deal pipeline is expected for the remainder of the year.
Wells Fargo Securities, LLC CLO analysts on Tuesday raised their CLO issuance forecast for the year by $15 billion to $105 billion.
“September is likely to be challenging for issuance, due to a tight calendar,” Wells Fargo Securities senior analyst Dave Preston and associate analyst Mackenzie Miller said in a note.
“However, we expect a full pipeline in Q4, as managers look to price CLOs before year-end, and we have learned never to bet against CLO issuance in the fourth quarter,” the analysts said. “We also expect spreads to react negatively to the increased issuance.”
Of the 107 managers that issued CLOs in 2014, 39 have yet to issue a 2015 deal, the note said.
August issuance was light with about $6.5 billion priced in 13 broadly syndicated deals, according to Prospect News data.
No middle-market CLO deals priced over the month, Wells Fargo said.
Fifth Street CLO Management LLC is in the pipeline with the $416.6 million Fifth Street SLF II Ltd./Fifth Street SLF II LLC offering backed by middle-market loans. Natixis Securities America LLC is the underwriter.
Mezzanine notes widen
U.S. CLO senior notes remain mostly unchanged, while mezzanine notes have widened with BB notes 50 basis points weaker from a month ago at Libor plus 700 bps, according to the Wells Fargo Securities analysts on Tuesday.
AAA-rated notes were about 2 bps wider in the Libor plus 150 bps area.
AAs are flat from a month ago at Libor plus 220 bps, while A-rated CLO notes were quoted 5 bps wider on the month in the Libor plus 315 bps area.
BBBs were unchanged at Libor plus 425 bps.
“The BBB and BB tranches have widened 100 bps to 125 bps from their tightest year-to-date levels seen in late May/early June,” the analysts said.
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