Change font size: Switch to default font size Switch to medium font size Switch to large font size

  The 3rd Annual Investors' Conference on CLOs and Leveraged Loans
New York
April 22-23, 2014
  The 2nd Annual Sunshine Backed Bonds™: Where Solar Meets Wall Street
New York, NY
May 2, 2014
  Global ABS 2014
Barcelona, Spain
10-12 June 2014
  The 20th Annual ABS East Conference
Miami Beach, Florida
September 21-23, 2014
  6th Annual Covered Bonds The Americas Conference
New York, NY
October 6, 2014
  12th Annual African Capital Markets Conference
Cape Town, South Africa
November 13-14, 2014
Main Website >>Structured Finance >>Blog >> CLO Manager Consolidation: Is The Timing Right?
<< Back to Blog

Ron D'Vari, Chief Executive Officer & Co-Founder, NEWOAK CAPITAL LLC

CLO Manager Consolidation: Is The Timing Right?
Wednesday, August 31 2011 | 08:14 AM
Ron D'Vari
Chief Executive Officer & Co-Founder, NEWOAK CAPITAL LLC

After 4 years of anticipation by investors, we are finally seeing CLO manager consolidation occurring in a meaningful but yet modest way.

The CLO market had gone from being driven by equity-investors/managers seeking leverage in early years, to an asset management/structuring fee play by the mid 2000’s. This led to a proliferation of smaller managers hanging on for the market re-opening for new issuance post-2007. Because of the pending Dodd-Frank’s risk-retention rules requiring issuers to keep 5% of equity and debt, smaller CLO managers without an outright equity capital or sponsorship are more willing to sell out.

The timing of these consolidations may appear unwise in light of the volatile markets, lower expected growth and uncertainties about European bank capital issues. However, since the funding spread of the existing CLOs are fixed, wider loan spreads for reinvestment will lead to higher equity cash flows and returns. Depending on the combined price of management fees and purchased equity cash flows, the strategy of acquiring smaller CLO managers could make sense today for larger managers.

Longer term, CLO manager consolidation is a negative factor for the corporate loan issuers as it reduces their investor base and their pricing power. Higher spreads due to a weaker economy is already expected, so the only good news for corporate issuers is that Libor will stay low for quite a while and keep their overall funding costs low.
0 Comment | Add Comment(s)

<< Back to Blog

Leave a Comment

To make comments, please Sign-In