SCIWire

US CLO mezz pauses

Thursday 26 January 2017 15:14 London/ 10.14 New York/ 23.14 Tokyo

US CLO secondary market mezz rally is pausing for breath this week so far.

"Superficially it's still very active with a lot of paper coming in for the bid, but the volume of non-investment grade paper is half of what it was last week," says one trader. "Investment grade guys are still buying, but below that spreads are pretty much flat on the week as everyone there is taking a breather."

The trader continues: "Mezz BWIC volumes climbed so high last week that there was a general realisation the rally had moved too far too fast especially in the single- and double-B space. We've seen a lot more DNTs this week - now around the 30-40% level."

Nevertheless the trader remains positive about the middle of the stack. "There are still opportunities in mezz, but it's more on a name by name basis now. Equally, there's less likely to be as much paper circulating as a lot of it is now in stronger hands."

Meanwhile, in the equity space the trader expects to see more pieces in for the bid, though unlikely to generate a strong tightening trend. "The re-sets in the loan market means a real boost in allocations and therefore pre-payments in CLOs. So, investors are looking to take profit on their equity holdings to take advantage of the existing collateral."

However, the trader doesn't envisage a major reversal will emerge any time soon. "Overall, CLO secondary spreads are currently moving sideways and provided there are no macro issues we'll continue to trade in a range for a while, especially with only light new issuance volume."

There are currently eight BWICs on the US CLO calendar for today. The chunkiest of those remaining is a $71.59m equity list due at 13:00 New York time.

The five line auction comprises: CVPC 2015-3A SUB, GALXY 2012-14A SUBA, GALXY 2013-15A SUBA, LONGF 2013-1A SUB and NEND 2013-1A SUB. Only GALXY 2012-14A SUBA has covered on PriceABS in the past three months - at MH50S on 21 December.

26/01/2017 15:14:15