CLO primary sees increased demand; secondary CLO AAA spreads trade at low 140 bps area

By Cristal Cody

Eureka Springs, Ark., July 29 – Primary action in the CLO markets looks poised to remain strong heading into August, following heavier volume in July.

“One month in, it appears clear that to this point the markets have shrugged off Brexit and set aside worries about global growth,” Wells Fargo Securities, LLC analysts said in a note on Friday. “July was marked by a large increase in demand across credit, as both high yield and investment grade spreads tightened to 2016 lows.

“On the CLO side, increased demand was seen in the primary market, as July 2016 issuance is the third highest monthly total in 2016, at $5.8 billion. Also, $2.3 billion of July 2016’s volume was issued in just one week.”

The increased demand also “materialized in upsized and larger CLOs” during the month, the analysts said.

Two of the year’s largest U.S. CLO deals priced in July. Credit Suisse Asset Management, LLC sold $814.25 million of notes in the Madison Park Funding XXI Ltd. transaction, while Sound Point Capital Management LP priced the $722.5 million Sound Point CLO XII, Ltd./Sound Point CLO XII LLC deal.

In the secondary market, AAAs have tightened to the low 140 basis points area for benchmark managers, while BBB spreads are in the 425 bps area, according to the note.

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