NEW YORK, July 14 (Reuters) - The US$52.4bn of US Collateralized Loan Obligation (CLO) funds issued in the first six months of 2017 was 100% higher than a year earlier, comfortably exceeding analysts’ forecasts and brushing off concerns that regulations would temper volume.
Only US$26.2bn of CLOs was issued in the same period of 2016, according to Thomson Reuters LPC Collateral data, amid higher market volatility. Only two US CLOs were arranged in January 2016 and six in February, compared to 26 CLOs arranged in June 2017.
Dodd-Frank risk-retention rules, which came into effect in December and force managers to hold 5% of their funds, did not curb issuance as expected as managers entered 2017 ready to issue compliant CLOs after working on solutions.
“Experience has shown that risk retention has been a project to solve and there has been, for most part, good solutions implemented and there seems to be plenty of capital willing to participate in risk-retention vehicles,” said Bjarni Torfason, a CLO analyst at Deutsche Bank. “While [risk retention] definitely creates bumps in the road and slows down the process and creates extra transaction costs, it looks like the market is comfortable solving it.”
JP Morgan, Morgan Stanley, Wells Fargo and Deutsche Bank increased their 2017 CLO forecasts in June, with JP Morgan and Deutsche Bank raising their predictions to as much as US$95bn, according to research reports. If volume hits that target, 2017 will be one of the top five biggest years of US CLO issuance ever. Forecasts initially ranged from US$50bn to US$70bn.
Citigroup was the top arranger of US CLOs by volume in the first half of the year with US$8.9bn of issuance, according to LPC Collateral data. Morgan Stanley was second and Bank of America Merrill Lynch was third.
Citigroup was also the most active arranger by volume in the second quarter with US$6.3bn of issuance, according to the data. Bank of America Merrill Lynch was second and Natixis third.
“We’ve made a significant effort to build the broadly syndicated CLO business to complement our existing middle-market CLO platform,” Kevin Alexander, Natixis’ head of global markets and investment banking, Americas, said in a statement.
In the first quarter of 2017, Wells Fargo was the most active arranger with US$3.4bn of volume. The bank was in 10th place in the second quarter.
Citigroup was also the most active arranger of US CLO resets in the second quarter with US$4.1bn of volume, according to LPC Collateral. In a reset, the maturity of the CLO is extended to allow the deal to remain outstanding for longer. JP Morgan was the second most active arranger of resets and Wells Fargo was the third most active.
Spokespeople for Citigroup, Morgan Stanley, Bank of America Merrill Lynch and Wells Fargo all declined to comment. (Reporting by Kristen Haunss; Editing By Tessa Walsh and Michelle Sierra)