Another peak

After a couple of difficult years, CLOs have made a strong comeback.

By the end of November 2017, new collaterilised loan obligation issuance in the US had reached $108 billion for the year, reports Lipper Alpha Insight, just below the record issuance levels seen in 2014.

This is despite new US risk retention rules coming into force in December 2016 requiring CLO managers to hold a 5 percent interest on all CLOs issued. The regulations had been anticipated to dampen the US CLO market, at least for 2017.

There are clearly market forces at work, with high demand from borrowers as economies continue to grow and from investors for CLO products in the now all-too-familiar low yield environment.

Indeed, Moody’s estimates that US CLO issuance will match that of 2017. Yet the other factor in the CLO market’s rude health has been the ability of many managers to find solutions to the risk retention puzzle over the last two years.