The State of CLO Formation in the Second Quarter

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CLOs some 60% of the loan market, and it's such a big driver of what we see on the primary side in the loan market. We were pretty much not doing any new issue CLOs since kind of middle of last year because we thought that secondary was way more attractive to the tune of 800 to 1000 basis points of additional return. But there are these captive funds that are out there that are doing new issue CLO,. And so I mean the market has continued to hum on by, and you know, issuance is kind of at roughly the pace that we saw kind of last year and headed towards another 100 billion plus sort of issuance year.

The end of Libor is a little over a week away, and some US corporate borrowers are still racing to switch their floating rate loans to SOFR ahead of the 30 June deadline.

The loan market’s transition away from the old reference rate has been slow, but increasingly contentious in recent months. Borrowers, lenders and financial sponsors have tussled over the compensation offered to loan investors to swap into the lower-yielding SOFR benchmark.

In this week’s edition of Cloud 9fin, US deputy editor David Bell sat down with Dan Ko, a senior principal and portfolio manager at Eagle Point Credit Management to talk about how CLO equity investors rallied loan buyers to resist off-market SOFR amendments — as well as the challenges and opportunities in CLO equity as more deals exit their reinvestment periods.