Citigroup retains top spot in third-quarter U.S. CLO arranger league table

October 20, 2016 1:20 PM EDT

A view of the exterior of the Citibank corporate headquarters in New York, New York, U.S. May 20, 2015. REUTERS/Mike Segar/Files


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By Kristen Haunss

NEW YORK (Reuters) - Citigroup was the most active arranger of US Collateralized Loan Obligations (CLOs) in the third quarter, holding the top spot for the second consecutive quarter, as issuance rose more than 10% from the previous three months, according to Thomson Reuters LPC Collateral data.

The bank arranged seven US CLOs for about US$3.6bn for firms including GSO Capital Partners, the credit investment arm of Blackstone Group, and 3i Debt Management, according to the data. It also ranked first last quarter, an improvement from sixth after the first three months of the year.

Wells Fargo remained in the second spot on the US CLO arranger league table and Morgan Stanley improved to third after dropping to fifth in the second quarter from the top spot after the first three months of the year, according to LPC Collateral data.

Issuance of CLOs, the biggest buyers in the US$875bn leveraged loan market, increased last quarter to US$19.9bn, up from US$18bn in the second quarter, according to LPC Collateral data. Despite the uptick, overall volume of US$49.7bn this year as of October 19 is down 40% from the same time period in 2015.

Volume has been challenged by lower loan issuance and upcoming risk-retention rules that require managers to hold 5% of their fund.

New money institutional loan volume was down about 20% in 2015 from 2014, according to Thomson Reuters LPC data. Issuance for the first three quarters of the year was about US$132.5bn, down about 3% from the same time frame in 2015.

The CLO market also got off to a slow start with just US$8bn of issuance in the first quarter, with only two CLOs raised in January, according to LPC Collateral data.

Volume has been down because issuance in the first quarter was so low, said Brad Rogoff, head of credit strategy at Barclays.

Issuance since then “hasn’t been going at a breakneck pace, but it’s been going at a healthy pace,” he said.

While new CLO issuance year-to-date is down from 2015, volume of CLO refinancings and resets has picked up as managers seek to cut interest rates and extend maturities ahead of risk-retention rules, which take effect in December.

More than 15 resets and more than 30 refinancings for more than US$12bn of volume have been completed this year, up from combined refinancing and reset volume of about US$10.5bn in 2015, according to LPC Collateral data.

While issuance is down, there is still investor demand. The price of the Palmer Square CLO Debt Index (CLODI), which measures the total return of CLO mezzanine debt, continues to rise, hitting a new high of 104.53 on October 19.

“I think [the market] is pretty positive on mezz, specifically junior mezz,” Rogoff said. “BB [CLO tranches] trade cheap to underlying loans and there is still some demand there.”

CLOs, which pool loans of different credit quality, sell slices of the fund of varying seniority, from Triple A to B, to investors including insurance companies. The most junior and riskiest portion of the fund, the equity slice, is paid last with what is left over after the fund’s bondholders receive their distributions.

Spokespeople for the banks declined to comment or didn’t return telephone calls seeking comment.

(Reporting by Kristen Haunss; Editing by Michelle Sierra.)



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