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报告摘要

CLO Interest Summary

Core Content

This document provides an in-depth analysis of the Collateralized Loan Obligations (CLOs) market in the United States and Europe, focusing on regulatory changes, market trends, and credit implications. It also includes insights from market participants and performance updates for the fourth quarter of 2017.

Main Points

1. US CLO Risk-Retention Rules Elimination

Ruling: The US Court of Appeals ruled on February 9, 2018, that open-market CLO managers are not required to retain credit risk under the Dodd-Frank Act.
Credit Impact: The elimination of the rules is credit neutral for CLOs. Prior to the rules, CLOs already had mechanisms to align managers' and investors' interests.
Indirect Effects: The ruling may have mixed indirect credit effects:
- Negative: Increased competition for leveraged loans may lead to weaker underwriting standards.
- Positive: Greater competition may help borrowers refinance more easily, reducing near-term default risk.
Refinancing Impact: The removal of risk-retention requirements could lead to an increase in CLO refinancings, which are credit positive as they reduce the cost of capital and enhance credit support.

2. Securitization as a Funding Source in the US

Trend: Securitization has grown as a major funding source for the US economy, especially in sectors not directly supported by the government.
Government Role: In housing and higher education, the government still plays a dominant role in funding.
Private-Label Securitization: Its share in total outstanding debt has declined to 11% in 2017 (from a peak of 26% in 2007), while government-backed securitization has decreased less sharply, at 48% (from 55% in 2009).
Credit Contribution: The US government contributes more than securitization to debt growth, adding ~$2 trillion since the financial crisis.
Regional Comparison: Securitization funds a larger share of US household debt (55%) compared to Europe (18%).

3. US CLO Sector Update – Q4 2017

Issuance Trends: CLO issuance volume increased in Q4 2017, reaching $50.9 billion, with 169 new deals and 96 resets contributing to a full-year volume of $144.4 billion.
Macro Stability: Most macroeconomic indicators remained stable, with low volatility and stable loan prices.
Credit Quality: CLO asset credit quality metrics were mixed, with higher exposure to lower-rated assets and deteriorating recovery rate estimates.
Upgrades and Downgrades: CLO upgrades outpaced downgrades, primarily due to deleveraging of amortizing CLOs.

4. European CLO Sector Update – Q4 2017

Strong Issuance: European CLO issuance remained strong, with 29 BSL CLOs rated in Q4 2017, totaling €12.1 billion.
Credit Quality Deterioration: Recent-vintage CLOs showed worsening credit quality, with WARF deteriorating significantly for both CLO 1.0 and CLO 2.0 structures.
Leveraged Finance Growth: Total leveraged finance issuance in 2017 was $270.5 billion, double the 2016 level. Leveraged loan issuance in Q4 2017 was $47.1 billion, a strong increase compared to previous quarters.
Default Rate Outlook: The European speculative-grade non-financial corporate default rate is expected to decline to 1.2% by the end of 2018 due to improved fundamentals and low refinancing risk.

5. Market Views from True Sale International Conference

Investor Concerns: Investors remain concerned about tail risks in leveraged finance, especially with high leverage ratios and cov-lite loans becoming the norm.
CLO as Relative Value: Despite some valuation challenges, European CLOs are still seen as attractive from a relative value perspective.
Spreads and Market Conditions: CLO spreads are expected to tighten, but not to return to pre-crisis levels, due to non-standardized structures and capital requirements.
Refinancing and Resets: Refinancing and resets are viewed as self-healing mechanisms that help maintain flexibility and prevent portfolios from becoming static.
Investor Base: A solid Aaa (sf) investor base is crucial for future CLO primary market activity, with Asian investors playing an increasingly important role.

6. Key Trends in CLO Documentation and Structure

Documentation Looseness: CLO documentation is becoming more flexible, with limited noteholder involvement in amendments.
Structural Features: Some non-standard features in CLO 2.0 structures may increase credit risk, but are expected to remain small variations.
Leverage and WAL: The median debt-to-EBITDA ratio is expected to rise, and the weighted average life (WAL) of CLOs is likely to increase due to extended loan maturities.

Key Information

Regulatory Impact: The elimination of risk-retention rules for open-market CLOs is credit neutral but may have indirect effects on the market.
Securitization Role: Securitization remains a major funding source in the US, especially in sectors not directly supported by the government.
CLO Performance: CLOs in the US and Europe have shown mixed performance in Q4 2017, with increased issuance and credit quality concerns.
Market Outlook: The European CLO market is expected to maintain strong activity in 2018, with refinancing and resets playing a key role in portfolio flexibility.
Investor Behavior: Active trading and transparency are now norms in the European CLO market, driven by increased manager participation and greater market access.

Conclusion

The CLO market is evolving with regulatory changes and market dynamics, leading to increased issuance and refinancing activity, but also credit quality concerns. The US and European markets show different trends, with the US market being more mature and less reliant on government funding, while Europe's CLOs continue to offer relative value despite structural complexities. Overall, the market remains active and liquid, with refinancing and resets helping to maintain credit support and avoid stagnation.