In light of the recent pick-up in new-issue CLO activity, RBS CLO strategist Justin Pauley is boosting his forecast for CLO issuance to a range of $20-25 billion for 2012, excluding refinancings, which nearly doubles his original prediction of $12-14 billion.
In a report published Friday, Pauley cites three reasons behind the sharply higher forecast: New investors entering the market, including buyers of triple-A tranches and equity; the rally in the secondary CLO market; and a stabilizing in the arbitrage of CLO liability and asset prices courtesy of a reduction in market volatility.
As reported, managers printed $5.83 billion of new-issue CLOs in the first quarter (including refinancings). When you add the four deals that have priced so far in April – GoldenTree Asset Management’s $526.8 million transaction, which priced on April 3; Silvermine Capital Management’s $462.4 million deal, which priced on April 4; Fraser Sullivan $458.65 million deal, which priced on April 11; Cerberus has also priced an $833 million middle-market deal, according to RBS – the year-to-date figure grows to $8.12 billion, according to LCD. This compares with $1.21 billion during the same period last year, and sources say there are more deals in the works.
“Given the current rate of growth over the past months (averaging slightly more than $2 billion per month), we would expect close to $25 billion of issuance in 2012,” Pauley added. “However, with uncertainty still around global growth and Europe’s ultimate outcome, as well as questions surrounding new financial regulations, the current pace may be unsustainable.” – Kerry Kantin