New York Life Sells CLO With Lowest Yield Spread on AAAs of 2014Kristen Haunss and Christopher DeReza
A money-management unit of New York Life Insurance Co. issued a $412.5 million collateralized loan obligation that pays the lowest yield spread of the year on the most senior piece of the fund, according to data compiled by Bloomberg.
The deal’s $256 million Aaa rated slice yielded 140 basis points more than the London interbank offered rate, according to the data. The average spread on AAA pieces was 150 basis points in May, according to Wells Fargo & Co. At the top of the market in 2007, AAAs yielded as little as 23 basis points, or 0.23 percentage point, over the benchmark.
Issuance of CLOs, which helped finance some of the biggest leveraged buyouts in history during the last credit boom, has picked up following an early 2014 slump after the Volcker Rule said banks can’t invest in CLOs that own bonds. There have been $49.2 billion of deals raised in the U.S. this year, after $82 billion were sold in all of 2013, according to Royal Bank of Scotland Group Plc.
“Supply, regulation and complexity,” are why CLO AAA spreads have been so wide this year,’’ Dave Preston, a CLO analyst at Wells Fargo in Charlotte, North Carolina, said in a telephone interview. Preston said he couldn’t speak to whether the trend of lower yields would last.
A Federal Deposit Insurance Corp. requirement put in place in April 2013 has contributed to the increase in yields, because it says banks with more than $10 billion in assets that buy CLOs must designate them as ’’higher-risk’’ holdings.
The recent surge in CLO issuance also has allowed investors to be selective and choose not to buy a deal if interest rates are too low, Preston said.
JPMorgan Chase & Co. boosted its annual 2014 sales forecast to as much as $100 billion, which means the year may end up the biggest on record. CLOs pool high-yield corporate loans and slice them into securities of varying risk and return, typically from AAA ratings down to BB.
The deal for New York Life Investment Management LLC, arranged by Bank of America Corp., is the latest example that shows investors are beginning to accept lower yields on CLO debt.
Jacqueline Meere, a New York Life spokeswoman, and Zia Ahmed, a Bank of America spokesman, declined to comment.
Oak Hill Advisors LP and Symphony Asset Management LLC both issued CLOs in the last month that each had among the lowest AAA rates of the year when they were priced, according to RBS.
Oak Hill raised a $777 million CLO this week with a yield spread of 147 basis points more than Libor for a $463.5 million Aaa piece, according to Bloomberg data.
Symphony issued an $838 million CLO in May, which has a $250 million Aaa piece that offered 147 basis points of extra yield, according to Bloomberg data.
In the aftermath of the credit crisis, spreads on existing AAA debt rose to as high as 725 basis points in April 2009, according to Morgan Stanley data.