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JP Morgan, BofA raise 2024 US, European CLO volume forecasts

US issuance is on a record-pace year-to-date, although JP Morgan analysts do not expect managers to equal 2021’s record full-year mark.

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Research analysts at JP Morgan and BofA Securities have each boosted their year-end CLO issuance forecasts in the US and Europe.

Citing a “whiff of exuberance in the air,” JP Morgan’s research team is “modestly” revising its US expected volume to $130 billion, a 13% increase over its initial projection of $110-120 billion heading into January, as noted in the firm’s weekly fixed income report issued Feb. 23.

BofA, meanwhile, raised its US primary-market projection to $145 billion ($110 billion broadly syndicated, $35 billion middle market/private credit) from its original $110 billion call from last November. BofA upped its expected levels of refinancings and resets to a combined $55 billion from $35 billion — although the bank noted its preliminary estimate was based on current spread conditions. BofA analysts wrote then the market could see $55 billion in refinancings/resets should AAA spreads tighten as much as 20 bps during the year.

The boosted forecasts for the US derives from the record pace for primary-market CLO issuance, which at $32.3 billion through Feb. 23, per LCD data, is running well ahead of the similar period in 2021 ($22.7 billion, according to LCD) on the way to a record $187 billion.

JP Morgan analysts say managers are “very unlikely” to attain 2021’s full-year mark, however, as they are held back by limited sources of loan collateral to print deals. “New leveraged lending activity such as from M&A or leveraged buyouts needs to pick up,” although net new loan supply is up significantly year-over-year, the report stated.

JP Morgan maintained its mid-year AAA spread forecast of 150 bps over term Sofr, despite the fact several tier one managers have achieved that mark and have even priced deals tighter.

For the European market, JP Morgan now projects new issuance of €30 billion, up from the pre-year €25 billion forecast. BofA expects €27 billion in new deals across Europe, as well as €12 billion in refinancings and resets.

Featured image: Lemon_tm/Getty Images/iStockphoto

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