Bloomberg News

U.S. CLOs May Buy $70 Billion of Loans This Year, JPMorgan Says

February 14, 2012

Feb. 13 (Bloomberg) -- Collateralized loan obligations in the U.S. might purchase about $70 billion of loans in 2012 as managers seek to buy new-issue credits, according to JPMorgan Chase & Co.

CLOs will have a reinvestment capacity of as much as $60 billion prepayments and $8 billion in principal proceeds, analysts from the bank estimate in a Feb. 10 report.

“With the loan pipeline gradually building up, we believe CLOs will continue to play a role in providing liquidity to the leveraged loan market,” Rishad Ahluwalia and Maggie Wang wrote in the report.

CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and return.

CLO managers are looking to purchase loans through new sales rather than in the secondary market because they can potentially get larger allocations, according to the report. The debt may also include floors on the London interbank offered rate and better spread margins on the lending benchmark, JPMorgan said.

Based on a sample of about 455 U.S. CLOs, JPMorgan says the top 50 loan issuers represent 37.1 percent of the funds’ holdings, according to the report.

Loans to Univision Communications Inc., First Data Corp., HCA Holdings Inc. and Community Health Systems Inc. were among credits that had the biggest increase in concentration in U.S. CLOs, according to the report.

Four CLOs backed by widely syndicated loans totaling $1.7 billion have been raised in the U.S. this year, according to data compiled by Bloomberg. There were $11.7 billion of such funds raised in 2011. At the height of the market in 2007, $91.1 billion of funds were issued, Morgan Stanley data show.

--Editors: Faris Khan, Chapin Wright

To contact the reporter on this story: Kristen Haunss in New York at khaunss@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net


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