December 3, 2024 - U.S. CLOs have set a new annual issuance record with one month remaining in the calendar year. As of November, new issuance volume stands at $191 billion, 72% higher year-over-year, and eclipsing the previous record of $187 billion set in 2021. Including CLO resets ($198 billion) and CLO refinancing ($76 billion), total CLO volume exceeds $465 billion, surpassing the 2021 record of $438 billion. Notably, October was the busiest month for the CLO primary market with combined issuance of $59 billion, while November’s new issue tally of $26 billion was the second highest on record, according to data from Citi Research and Pitchbook LCD
Soft issuance across the previous 18 months set the stage for 2024’s record haul. A year ago, close to half of the market was scheduled to exit their reinvestment periods in 2024, and the high demand for floating-rate instruments, driven by a “higher-for-longer” interest rate environment, pushed investors toward CLOs. In addition, clarity around Basel III regulations on bank capital charges has been supportive of CLO AAA investments.
However, while the volume of CLO activity has increased year to date, it has not significantly expanded the overall size of the asset class. After accounting for liquidations and amortizations from existing deals, the size of the market has grown by about $24 billion, or 1%, to $1.046 trillion, according to BofA. This contrasts with 2021, when high new-issue levels expanded the market by 19%. Specifically, net supply of CLO AAA notes has been slightly negative year to date, per BofA Global Research.
An area of the market that has expanded is private credit CLOs (PCLOs). The PCLO market has grown by 16% this year, fueled by $36 billion of new issuance, surpassing the previous record of $29 billion set last year. PCLOs now represent 19% of total CLO new issuance, second only to last year’s 23% share, and 13% of CLO assets under management, per BofA Global Research. Demand from investors has compressed the PCLOs and BSL CLOs average basis to a historically low 20 basis points. While BSL CLOs are equity arbitrage vehicles, PCLOs are generally used to finance private corporate credit loans originated by managers. (Click here for an overview of PCLOs.)
Looking ahead to next year, analysts are predicting another strong year for CLOs, with several banks forecasting that issuance will reach similar levels as this year, ranging from $180 billion to $215 billion. The outlook is driven by strong investor demand for floating-rate products and an expected increase in leveraged loan activity tied to lower interest rates and a healthier M&A environment.
