CLO Issuance in US Nears Pre-Crisis Levels

The issue of so-called collateralised loan obligations (CLOs) by US corporates, which slumped after the global financial crisis, has reached its highest level since 2007, according to data issued by research and analysis group S&P Capital IQ.

CLOs are a form of securitisation where payments from multiple medium-sized and large business loans are pooled together and passed on to different classes of owners in various tranches. Investing in CLOs offers investors the potential for higher returns than placing their money in similarly-rated structured products, such as commercial mortgage-backed securities (MBS).

Helped by a jump in sales this month US issuance of CLOs since the start of 2013 has reached US$55.41bn, putting it on track for the best year since the total of US$88.94bnin 2007, just before the crisis broke.

Business daily the Financial Times said that the recovery of the CLO market will be welcomed who had warned that the post-crisis slump would leave companies unable to refinance their older loans and potentially spark a wave of corporate defaults. Many traditional buyers of CLOs, such as complex bank-operated special investment vehicles, disappeared after 2008, causing issuance of CLOs to all but disappear in the following year.

The FT reports that bundled corporate loans have revived in the US as banks, pension funds and insurance companies seek ways to boost returns in the face of the Federal Reserve’s continued low interest rates. Europe’s market has been slower to revive, but Intermediate Capital Group, a London money manager, is preparing to issue a €500m CLO, the largest offering there since the financial crisis.

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