Leveraged Loans: CLOs Cut Costs via Refinancings, Amid Investor Demand

US CLO Issuance total

Taking a cue from the broader leveraged loan market, a staggering $82 billion in U.S. CLOs have been refinanced so far this year, with managers increasingly able to lower their cost of financing along the way, according to LCD.

The average AAA CLO spread was cut by about 47 bps via refis in July. That savings has risen each month since January, when AAA spreads averaged about 24 bps lower following a refinancing. Over the course of the year, the average AAA coupon has been reduced by about 33 bps. The AAA tranche is important, of course, as it makes up more than 60% of the debt stack in CLOs.

AAA CLO coupon cut

The more than $82 billion of refinancing activity this year already swamps the full-year total for 2016, which was $22 billion. Despite this frenzy, the rapid tightening of new-issue AAAs has led the refinanced tranches (which have shorter maturities, and therefore price inside of new issues) lower as well.

The CLO refinancing wave comes as leveraged loan issuers take advantage of intense investor demand to reprice existing credits, reducing the interest rate on debt, often by 100 bps. Through July, there has been some $360 billion in U.S. loan repricings, according to LCD. – Andrew Park

You can read more about how CLOs work in LCD’s online Loan Primer/Almanac (it’s free). 

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This story first appeared on, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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