Issuance of collateralized loan obligations rose to $57.1 billion during the first three quarters of the year, surpassing all of 2012’s volume, according to Fitch Ratings.
Twenty-seven U.S. CLOs backed by widely syndicated loans were raised in the third quarter, totaling $13.2 billion, Fitch said today in a report. August was the most active month, with $6 billion of deals priced. There were $51.9 billion deals raised last year, according to Fitch.
Apollo Global Management LLC and GSO Capital Partners LP, the debt-investment unit of Blackstone Group LP, were among firms that issued CLOs last quarter. Volume has increased amid proposed regulation that may shrink the market for CLOs by at least 75 percent. CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and returns.
Fifteen CLOs for $6.7 billion were raised in the U.S. in October, marking the largest monthly issuance for the second half of 2013, according to a Nov. 8 report from Morgan Stanley. There were $26.5 billion of deals raised in the first quarter and $17.4 billion in the second, according to the Fitch report.
There was 2.5 billion euros ($3.3 billion) raised in the third quarter bringing 2013 European CLO issuance to 4.7 billion euros on 14 deals, according to Fitch.
The New York-based Loan Syndications and Trading Association sent a letter Oct. 30 to the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Securities and Exchange Commission, asking them to reconsider proposed risk-retention rules, which may force CLO managers to hold onto 5 percent of debt they package or sell and force banks to hold onto a portion of a term loan they arrange and sell to CLOs without the ability to hedge or offload it.
The LSTA is requesting regulators allow third-party investors holding the riskiest slices of CLOs to be qualified as stakeholders in order to meet the risk-retention criteria. It is also proposing a category of high-quality leveraged loans with certain characteristics that don’t attract risk retention.
An LSTA survey of money managers overseeing $228 billion in assets said the market for CLOs may shrink by at least 75 percent if proposed risk-retention rules were implemented.