Bloomberg News

RBS Raises Forecast of 2012 CLO Sales to as Much as $25 Billion

April 13, 2012

Royal Bank of Scotland Group Plc (RBS) is boosting its forecast for the issuance of new collateralized loan obligations in the U.S. this year to a range of $20 billion to $25 billion.

CLOs, which finance buyouts and mergers, were previously expected to raise between between $12 billion to $14 billion in new funds, according to a report published today by Britain’s biggest government-controlled bank.

RBS is revising its projection of the formation of new CLOs, a type of collaterlalized debt obligation that pools leveraged loans and slice them into securities of varying risk and return, after the funds raised more than $8.3 billion this year. Sales are picking after $11.7 billion were raised last year, down from $91.1 billion issued at the peak of the market in 2007, according to data compiled by Bloomberg and Morgan Stanley.

“Dealers managed to pump out just shy of $2.5 billion in new deals in March,” Justin Pauley, a CLO strategist at RBS, wrote in the research report. “Given the current rate of growth over the past months, we would expect close to $25 billion of issuance in 2012.”

RBS’s revised forecast was kept in the range of $20 billion to $25 billion due to uncertainty surrounding Europe, global growth and new financial regulations.

“If volatility spikes again for a few months, we would expect a full quarter with only about $2 billion of issuance as in August through October of 2011,” Pauley wrote.

Leveraged loans are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.

To contact the reporter on this story: Christine Idzelis in New York at cidzelis@bloomberg.net

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


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