It's easy to forget that 2015 has been the second busiest year for CLO issuance in the U.S., with the current volume total of $97.34 billion behind only the record $124.1 billion from last year. While activity was brisk in the first half of the year, with volume averaging $9.9 billion a month, the tone was markedly different in the second half as the pace dwindled to $6.3 billion a month.
CLO managers and arrangers were confronted with volatile conditions in the second half that required creativity to get these transactions to the finish line. Predictions for next year, however, aren't as positive. Weaker demand for mezzanine and equity tranches, concerns over more loans being downgraded to CCC, rising interest rates causing decreased cash flows to equity holders, and challenges from risk retention are all expected to contribute to lower issuance.
CLO market participants foresee a smaller new-issue calendar for 2016, with credit allocation remaining front-and-center as the credit cycle matures. - Sarah Husband