CLO issuance volumes hit €10.8bn
The collateralized loan obligation (CLO) market has had a strong start to 2025, with February issuance volumes reaching €10.8bn (£9bn), according to an update from Kartesia Structured Credit.
This figure comprises €8.8bn in new issues and €2bn in resets.
Spreads remain tight, and issuers were eager to secure their liabilities at these favourable levels, the update from Kartesia’s Michael Htun, head of CLOs, and Panagiotis Dounavis, structured credit manager, pointed out.
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Larger deals were issued to capitalize on strong investor demand. The average new deal size was €463m, significantly higher than the €408m average in February 2024.
“While these larger deal sizes indicate market strength, the scarcity of new issue loan supply necessitates that CLO equity investors pay close attention to managers’ ramp strategies and model portfolios,” Htun and Dounavis said.
Despite the increase in primary supply, the overall cost of funding remained steady at 185 basis points month-on-month.
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Investors are also leveraging high loan prices to either liquidate transactions or sell short-duration profiles in secondary markets, according to Kartesia’s analysis.
Equity BWIC volumes surged to €265m in February, a substantial increase from the €25m recorded in January. Most of these profiles had reinvestment periods ending in 2025/26.
“European CLO fundamentals remained largely stable over the month. Managers are cleaning up portfolios ahead of marketing resets by selling down CCC assets and other topical names,” Htun and Dounavis said.
For resets recently priced or currently marketing, the average CCC basket was 2.8 per cent, ranging from 0.8 per cent to 4.1 per cent, they pointed out.
The loan market “continues to exhibit strong technicals, with numerous CLOs pricing against a limited supply of new loans”, said Htun and Dounavis.
This dynamic has driven loan prices to their highest levels since the first quarter of 2022, with 62 per cent of loan portfolios now trading above par.
“Given the limited call protection within loans, portfolio spread erosion persists as assets refinance,” they added.
Read more: Polen Capital raises $407m for inaugural CLO
