CLO market activity thins; Palmer Square offers $200.24 million deal; spreads remain weak

By Cristal Cody

Tupelo, Miss., Dec. 18 – The CLO market ended the last full week of the year mostly quiet as participants weigh how the Federal Reserve’s first rate hike in nearly 10 years will impact volume.

“Over a longer term rising short-rate environment, we generally think CLO spreads should tighten on floating rate demand, and to adjust for the overall coupon level,” Wells Fargo Securities, LLC analysts said in a report on Friday. “However, credit concerns may dominate the rate story in this cycle, leading to less tightening than expected.”

Coming up in new issuance, Palmer Square Capital Management LLC plans to price a $200.24 million CLO deal.

New issue CLO AAA spreads remain soft at the Libor plus 165 basis points area, while B-rated notes were quoted weak in the 1,000 bps area, the Wells Fargo analysts said.

Palmer Square Capital Management plans to price $200.24 million of notes due Jan. 21, 2024 in the Palmer Square Loan Funding 2016-1, Ltd./Palmer Square Loan Funding 2016-1 LLC offering, a market source said.

The deal includes $135 million of class A-1 floating-rate notes (/AAA); $18.4 million of class A-2 floating-rate notes (/AA); $16.9 million of class B deferrable floating-rate notes (/A); $5.7 million of class C deferrable floating-rate notes (/BBB) and $24.24 million of subordinated notes.

J.P. Morgan Securities, LLC is the placement agent.

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