Loan spread tightening squeezes CLO arbitrage for managers
After a rampant start to the year, collateralised loan obligations gave back most of their year-to-date gains as macroeconomic risks interrupted the corporate credit rally. But with spreads on the underlying loans continuing to tighten, a squeeze in the arbitrage for CLO managers is threatening to act as a deterrent to new issuance
With combined US and European year-to-date supply running at around $2 billion at the end of the first quarter, investor uptake of new collateralised loan obligations is on track to beat last year’s $4.3 billion by a significant margin. Indeed, dealers have recently confirmed their expectations for 2011 issuance of between $10 billion and $15 billion.
Although this is a far cry from the $80 billion printed at the height of the structured finance boom, investors say the product’s ability to
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