Issuance of collateralized loan obligations, which buy loans backing buyouts, may reach $65 billion to $75 billion in the U.S. next year, according to Morgan Stanley.
European CLO creation may total 8 billion euros ($11 billion) to 10 billion euros in 2014, the bank said today in a report.
CLO volume has risen to the highest level since 2007 as investors seek higher yields as the Federal Reserve holds interest rates at about zero for the fifth year. There have been about $75.1 billion of CLOs raised in the U.S. this year through November, compared with $46.3 billion for the same period in 2012, according to Morgan Stanley.
“We expect the strong momentum of CLO new issuance to carry on into the next year for both U.S. and European CLOs,” analysts led by Vishwanath Tirupattur wrote in the report. “In 2014 we expect the economics of new-issue CLOs to remain reasonable at the current asset spreads and cost of liabilities.”
There have been $85 billion of CLOs raised globally through November, compared with $55.3 billion during the same period last year, according to Morgan Stanley. (MS:US)
The bank also is projecting $45 billion to $50 billion of paydowns and redemptions among U.S. CLOs, most of which were raised before the financial crisis, including middle-market deals, according to 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.
Leveraged loans are rated below BBB- by Standard & Poor’s and less than Baa3 at Moody’s Investors Service. (MCO:US)
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