November issuance has pushed European CLO volume to a post-crisis high, amid record tight liability spreads.
The market has grown to €18 billion through November, thereby eclipsing the previous post-crisis record of €16.8 billion, set in 2016, according to LCD. Moreover, the final 2017 volume total could rise above €20 billion, as more managers are lining up deals before year-end.
Putting the €18.1 billion new-issue volume into perspective, 2007 saw the peak of pre-crisis European CLO issuance, according to S&P Global Ratings, which rated 71 CLO transactions worth €35 billion that year. And comparing the CLO market to loans, 2017 institutional loan volume stood at €96 billion as of Dec. 1 (the annual record is €111 billion, set in 2007).
Much of this year’s loan volume stems from opportunistic borrowing, however – largely refinancing of existing debt – with M&A-related activity at just €35.7 billion this year, versus €70.2 billion in 2007. Refinancings add no new money into a yield-starved investor market, and in hot markets, such as today, the end result of these deals is decreased return for investors already involved in the transaction.
For more info on CLOs and how they work check out LCD’s online Loan Market Primer. – Luke Millar
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