An extract from SCI's new CLO Markets service
Ninety-nine European CLOs were reset in 2021, many more than what was anticipated at the end of 2020. The total volume, including the full equity tranche, amounts to €42.2bn. New issue volumes, meanwhile, reached €38.6bn, a new post-crisis record.
“2021 was a perfect storm for refinancings. CLOs priced in 2020 at wide spreads and with short non-call periods; many CLOs from 2019 also became eligible for a refinancing during the year, while several transactions from 2017 were reaching the end of their reinvestment period,” says James Baillie, an associate in Paul Hastings' Structured Credit practice in London.
43 out of the 66 new deals that priced in 2020 exited their non-call period during 2021. Most of the 2020 deals that had their non-call ending by 2 December 2021 were duly reset or refinanced – the last reset of year, PGIM’s Dryden 79 Euro CLO 2020, priced on 10 December.
Deals like RR4 Loan Management, Man GLG CLO Euro VI, Ares European CLO XIV were not reset– a notice on a potential redemption of the Ares XIV deal was released in early December. In a couple of cases the NC were expiring well into December. MacKay Shields Euro CLO-2 was not reset but the change of collateral manager is likely to have been a key factor.
“Equity investors look at what the return looks like. Given the opportunity to refinance at tighter levels, they will take it,” notes Peter Cui, head of Structured Credit Syndicate (Europe and UK) at Natixis.
“Many of the deals that priced at wide levels in 2020 were structured with a one-year non-call, there was an expectation in the market that those transactions would be reset or refinanced at the earliest opportunity. With spreads tightening as much as they did, it was a no-brainer for the equity in those deals,” he adds.
In 2022, resets will again keep investors and arrangers busy. Besides the deals that are already out of their non-call period, a new batch will become callable. Deutsche Bank analysts forecast €40bn of reset and refi volumes in 2022 split 50/50 between refi and reset. Their forecast for 2022 new issue volumes in Europe is €36bn.
In their European CLO Outlook 2022, dated 30 November 2021, Deutsche Bank analysts estimate that €139bn of deals will have exited their non-call period by the end of 2022 split between €77bn that have already exited or that will exit by the end of 2021 and €51bn due to exit by the end of 2022.
This story is an extract from a longer article on SCI’s new CLO Markets service, which provides deal-focused information for the primary and secondary CLO markets. Offering intra-day updates and searchable new issue/refi/reset databases along with BWIC pricing and commentary. For a free trial to CLO Markets please contact Jamie Harper.