Collateralized loan obligation issuance 'robust' in 2013; CLO spreads tighten over year

By Cristal Cody

Tupelo, Miss., April 8 - Collateralized loan obligation issuance remains strong, and AAA-rated spreads have tightened this year to as low as the 110 basis points to 115 bps area, according to market sources.

CLO issuance is "robust" with more than $23 billion of CLO issuance priced through March, according to a Credit Suisse Securities (USA) LLC report. "In the meantime, spreads seem to have plateaued."

CLO AAA-rated tranches are trading in the 115 bps area, while BBB-rated parts are range-bound at 425 bps to 430 bps, Credit Suisse said.

Before the credit crisis, spreads for AAA-rated CLOs averaged about 25 bps over Libor, Fitch Ratings said in a report released on Monday.

Since then, AAA-rated spreads "have exhibited a fair amount of volatility," Fitch said.

Levels ranged from 190 bps over Libor in early 2010 to a post-credit crisis low of 120 bps over Libor in mid-2011. Spreads jumped to a high of 158 bps in September and a low of 130 bps in early and late 2012, Fitch said.

On Monday, NXT Capital, LLC announced the closing of its second CLO in less than a year and said NXT Capital CLO 2013-1, LLC sold $358 million of floating-rate notes and subordinated notes due April 2024. NXT said in the release that pricing on the $200 million tranche of class A notes (Aaa/AAA/) at Libor plus 150 bps "was a post-crisis low for an exclusively middle-market CLO."

NXT Capital plans to bring additional CLOs to the market.

"NXT expects to be a regular CLO issuer as we continue to expand and diversify our funding platform," Neil Rudd, NXT Capital's chief financial officer, said in the statement.

In 2012, CLO issuance hit $56.3 billion for broadly syndicated loans and middle-market loans, more than five times the amount issued in 2011, according to Fitch.

CLO issuance dropped during the credit crisis to a 15-year low of $300 million in 2009.

According to a news release from Morgan Joseph TriArtisan, on a net basis, 2013 "should actually be a weaker year for CLO investment into leveraged loans, with spreads nonetheless being pushed to new lows reflecting demand for yield by retail and alternative investors."

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