BofA forecasts $110B in 2024 CLO issuance, with MM/PC CLOs taking greater share
BofA Securities has published a 2024 US CLO issuance forecast of $110 billion, supported by continued growth in middle-market/private credit CLO offerings that have surged in 2023.
BofA calls for $75 billion in broadly syndicated CLO issuance and middle-market/private credit volume of $35 billion.
The BSL projection is below LCD's year-to-date 2023 tally of $77.7 billion, but the MM volume would represent a calendar-year issuance record for MM CLOs, which "will see a greater market share as the lending landscape shifts" toward private-credit sources of loan financing, the Nov. 10 report stated.
BofA's 2024 primary-issuance prediction is slightly above than those staked out in recent weeks by Barclays ($100 billion) and JP Morgan ($90-100 billion), but would likely still mark a third consecutive year of declining US CLO platform output amid falling supply of syndicated leveraged-loan assets.
Primary CLO market 2023 volume through Nov. 10 is $99.5 billion, unlikely to surpass the 2022 full-year volume of $129.3 billion with the market pricing an average of $9.6 billion of deals each month between January and October. The 2022 volume was the second-highest total in the CLO market's post-crisis era but was still a steep drop from the record $187.0 billion worth of deals in 2021.
The projected $35 billion in 2024 MM CLO deal volume would equate to market share of 32% of all US new-issue CLO activity, furthering a 2023 trend in which securitized MM loan vehicles took on a higher proportion of new-deal prints compared to the BSL variety. YTD MM issuance this year is $21.8 billion, or 22% of all CLO deal pricings, compared to the historical market-share average of 10-12%.
This year's issuance is nearing the record full-year issuance mark of $22.5 billion from 2021.
The MM CLO share growth is sparked in part by rise in private-credit CLOs, which carry similar pricing and structural features as MM CLOs but are uniquely composed of unrated large-cap loans that issuers diverted from the broadly syndicated market. Note that MM CLOs have typically securitized smaller-corporate loan assets financed and serviced by non-bank direct lenders.
Also in the 2024 market outlook report, BofA projects $35 billion in refinancing/reset volume based on current spread conditions, which average 178 bps on AAA tranches for BSL CLO deals with two-year call protection, according to LCD. About $45 billion in CLOs with expiring call protection are priced with AAA spreads north of 190 bps, "and thus have an incentive to lower their costs," BofA's report stated. "If spreads tighten by another 20 bps, refi/reset volume in the pipeline could be $55bn."
CLO refinacings and resets have totaled $13.97 billion in 2023 across 33 transactions. The YTD activity has nearly all occurred since July as spread conditions tightened significantly from the end of 2022 and a large volume of short-term deal prints last year exited non-call.
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This article originally appeared on PitchBook News
