GLOBAL REPORT—Investor interest in the collateralized loan obligation market is continuing to gain momentum, financing experts reported during a webinar last week.
Oliver Wriedt, head of capital markets and distribution at alternative credit manager CIFC Corporation, said year to date, $70 billion in CLO has been priced across 146 transactions. The CLO market is on track for a record year, he said. Further, a total $120 billion of CLO has been repriced year to date.
“The market is going from strength to strength,” he said during a SCI/Bloomberg Valuation Service webinar titled “CLOs: Pricing methodologies for legacy & 2.0 deals.”
“It’s really anyone’s guess what next year will bring,” he said.
CLO is a financing vehicle that allows banks to lower their risk profile by selling portions of their commercial loan portfolio to outside investors.
Wriedt said there is significant growth still available within the CLO space despite the market having entered its fourth year of resurgence.
“The market has really evolved very meaningfully,” he said.
Private equity, hedge funds, retail funds and opportunistic capital are among the entities interested in the market, he said.
“This is now an actively traded market,” he said.
Given that new investors are being drawn in, the panelists said it’s important that there be transparency around pricing within the market. The panelists said this transparency will help put investors at ease about committing capital to the space.
“Investors need transparency, and it’s important to attract these investors to the market,” said Cynthia Sachs, global head of Bloomberg Valuation Service.
“We need to grow the investor base … if we want to continue to enjoy the growth we’ve seen over the last 24 months,” Wriedt said.
CLO 2.0
The second iteration of the CLO market, CLO 2.0, is showing higher quality and lower default rates, said Jesse Knapp, managing director at financial services company Kanerai. He said he expects to see more repricing of CLO 2.0 loans.
Knapp said absolute returns for CLO 2.0 have been strong.
“We think the 2.0 market is compelling,” Wriedt said.