December 08, 2017
It has been a banner year for US CLOs, with new issue volumes already topping $100 billion, plus resets and refinancings accounting for a further $140 billion. Neil Weidner comments on the implementation and affect of risk retention requirements.
Excerpts from "New Investment Era Embedded,” SCI (Structured Credit Investor), December 8, 2017:
Neil Weidner, partner at Cadwalader, notes that 2017 marks the first year post-crisis in which there has been robust US CLO issuance in every quarter. He points to particularly strong demand from investors in Japan, the US and Canada, and the fact that many deals are oversubscribed. He suggests that such volumes indicate risk retention requirements are now part of the fabric of the market, with CLO managers having spent time and resources complying with the rules and financing being provided in turn.
Weidner believes that a major theme in 2018 will be identifying further strategies for risk retention financing. "Many managers are trying to optimise their powder by taking down vertical strips and agreeing bilateral contracts with financing providers, typically insurance companies," he says. "However, this process takes a while and there is limited capacity. The desire by managers to source alternative funding providers remains, so arrangers may begin financing deals, for example."