Surpassing expectations, 2017 US CLO Issuance Nears Record Levels

Issuance of collateralized loan obligation vehicles in the U.S. topped $118 billion in 2017, according to LCD, easily topping market expectations at the beginning of the year.

Indeed, due to risk retention guidelines enacted via Dodd-Frank – which mandated that CLO managers retain at least 5% of a CLO, as opposed to selling off the entirety of the vehicle to investors – the market consensus had CLO issuance slumping dramatically last year, to $55-60 billion, by some estimates.

That proved not to be the case, however, as the relatively attractive returns provided by CLOs in the current yield-starved capital markets was attractive to investors. In fact, during 2017 there was roughly $7 billion in CLO issuance created specifically with risk-retention in mind, according to market estimates.

CLOs comprise roughly 60% of the U.S. leveraged loan investor base. At year-end, there was some $960 billion of U.S. leveraged loans outstanding, according to the S&P/LSTA Index. – Staff reports

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