Bloomberg News

JPMorgan Chase Increases its 2012 CLO Forecast to $35 Billion

September 07, 2012

JPMorgan Chase & Co. (JPM:US) said that collateralized loan obligations may raise $35 billion this year.

The bank increased its forecast from $30 billion and says there may be $50 billion to $60 billion of the funds raised next year, according to a report published today.

CLO “spreads are very wide to other products so we see more demand, hence more issuance,” Rishad Ahluwalia, head of global CLO research at JPMorgan in London, said in an e-mail.

The highest-rated portion of new-issue CLOs have spreads of about 150 basis points more than the London interbank offered rate, according to the report. That compares with about 80 basis points more than the Euribor rate for five-year U.K. residential mortgage-backed securities and 60 basis points more than the swaps rate for five-year private label U.S. commercial mortgage- backed securities, JPMorgan said.

There have been $25.5 billion of CLOs raised this year, Ahluwalia wrote in the report. At the height of the market in 2007, $91.1 billion of CLOs backed by widely syndicated loans were sold, according to Morgan Stanley.

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. A basis point is 0.01 percentage point.

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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