CLO activity quiet; Black Diamond, Highbridge prep deals; Wells Fargo lowers forecast

By Cristal Cody

Eureka Springs, Ark., March 2 – CLO primary and secondary market activity continued to remain mostly quiet on Wednesday as the ABS conference in Las Vegas came to a close.

“There’s no real activity at all,” one source said. “A lot of deals haven’t been getting done, but that’s mostly caused by the market volatility and risk retention concerns.”

Risk retention regulations that require CLO managers to retain 5% of the risk in their CLOs take effect in December.

U.S. CLO volume totals $3.4 billion year to date.

Wells Fargo Securities LLC analysts on Wednesday revised their U.S. CLO issuance forecast to $60 billion from $75 billion on low loan issuance and a decline in equity demand.

Over the past month, J.P. Morgan Securities LLC and BofA Merrill Lynch analysts dropped their annual CLO volume forecasts to the $45 billion area.

“On the primary market, we still see strong demand for AAA CLOs from benchmark issuers, especially as banks react to low rates,” Wells Fargo Securities analysts said in a note. “We also expect demand for dual risk retention issues. Down the stack, we see marginal equity and mezzanine buyers still hesitant to buy primary issue.”

Coming up, Black Diamond Capital Management, LLC is in the deal pipeline with a $350 million CLO offering.

Also, additional details emerged on Highbridge Principal Strategies LLC’s transaction in the works. The CLO manager plans to price a $406.75 million deal.

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