CLO market on pace to top the $1 trillion this year

Kate Marino
·1 min read

Data: LCD, an offering of S&P Global Market Intelligence; Chart: Axios Visuals

The global CLO market now totals about $993 billion, and it’s growing, according to analysts at JPMorgan. With record issuance expected this year, the CLO market is on pace to top the $1 trillion mark.

Why it matters: If you have money with an insurance company or a pension, chances are some of that is invested in CLOs.

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  • Some investors pulled back from the CLO market last year when they feared a wave of ratings downgrades for loans would hurt the value of the portfolios. But those ratings cuts never really came en masse, Bloomberg reported.

Driving the news: "We have seen big banks and foreign investors that buy CLOs come back into the market," says Maureen D'Alleva, head of performing credit at Angelo Gordon.

Case in point: Citizens Bank started up a CLO purchase program recently, Bruce Van Saun, CEO of Citizens Financial Group, tells Axios.

  • Banks are sitting on record deposits. As Citizens’ cash started piling up, it looked for ways to diversify how it invested the funds. That's when, like many banks, it opted to begin purchasing the senior-most slices of CLOs.

How it works: CLOs buy hundreds of noninvestment grade loans, bundle them together, and then sell slices of the portfolio to investors.

The bottom line: CLO structures first came to prominence in the early 2000s. They survived the financial crisis, and the COVID-19 pandemic — and their growth shows no signs of stopping.

Go deeper: Here’s an explainer on how CLOs work. (Spoiler alert: It’s complicated.)

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