NEW YORK Citigroup retained its market-leading position at the top of the US Collateralized Loan Obligation (CLO) arranger league table in 2015 for volume and deal count while issuance fell 20% ahead of looming new regulations.
Citigroup increased its share of the market to 18% with 31 deals totaling US$17.7bn last year, up from 14% in 2014, according to Thomson Reuters LPC Collateral. Morgan Stanley maintained second place with 13% and JP Morgan retained third position with a 10% market share.
There was US$98.5bn of CLOs arranged in the US in 2015, which was the third biggest year of volume, after a record US$123.6bn was issued in 2014, according to Thomson Reuters LPC Collateral data.
The CLO market, which has grown about 71% from September 2011 until November 2015, is addressing risk-retention rules that take effect in December and force managers to hold 5% of their funds. Issuance is expected to fall for a second straight year as a result and Morgan Stanley is predicting US$60bn of US CLO volume in 2016.
“We expect big CLO managers continue to be the backbone of 2016 CLO issuance,” Citigroup analysts said in January, adding that the bank’s bear market forecast is US$55bn for this year. “Small managers, especially those who underperformed in 2015, will have more challenges in developing long-term capital for risk retention next year and may not be able to issue.”
Wells Fargo moved into fourth place on the 2015 US CLO arranger league table with 10% market share, moving up two spots from sixth with 8% in 2014, according to the data. Credit Suisse remained in the fifth spot and Bank of America Merrill Lynch dropped to sixth from fourth in 2014.
Goldman Sachs took the seventh spot, Deutsche Bank was in eighth place, BNP Paribas came in ninth, moving up from 11th in 2014, and Jefferies rounded out the top 10 in the US CLO arranger league table, according to the data.
Spokespeople for the banks in the top 10 either declined to comment or didn’t return calls and e-mails seeking comment.
COMPLIANCE PLANS
Although some older CLOs were given a regulatory reprieve last year, managers are starting to plan how to comply with the risk-retention rules that go into effect on December 24, 2016.
In July, the Securities and Exchange Commission, in consultation with the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp, said that it would not require funds issued before December 24, 2014 to become risk-retention compliant even if they are refinanced after December 2016.
Only around 10 of the 30 largest managers of CLOs – the biggest buyer of leveraged loans, which are used to back acquisitions such as Avago’s purchase of Broadcom – may be able to comply with the rules, according to management-consulting firm Oliver Wyman.
JP Morgan is predicting US$60bn to US$70bn of volume in 2016, Barclays is estimating US$70bn to US$80bn and Wells Fargo is forecasting US$75bn, according to research reports.
“While only a minority of deals issued” in 2015 were “explicitly compliant, a plan for eventual compliance has been an increasing focus for CLO investors and managers,” Barclays analysts wrote in a November 6 report.
(Editing By Tessa Walsh and Jon Methven)
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