Risk Retention Expected to Hurt CLO Growth in 2017

Issuance of collateralized loan obligations (CLOs) is unlikely to increase next year as risk-retention rules effective December 24 force banks to hold 5 percent of the transaction, banks predict, according to a Reuters report. Banks expect volume of $50 billion to $70 billion next year.

Monthly issuance had increased to a 2016 high of $10.6 billion in November from $8.4 billion in October, according to data compiled by Thomson Reuters LPC Collateral. "We have probably seen some issuance from January and February that was moved into November and December as try to close deals ahead of the risk-retention deadline," stated Bjarni Torfason, a CLO analyst at Deutsche Bank. Torfason added that "We think January and February may be slower than the average month."

However, President-elect Donald Trump has said he will dismantle Dodd-Frank. If his actions limit or eliminate risk retention, this would bolster CLO volume, as Reuters stated.

On September 13th, SFIG published its latest Industry Guide that focused on the Risk Retention rule. Please contact Sairah.Burki@sfindustry.org, Jennifer.Wolfe@sfindustry.org, or Alyssa.Acevedo@sfindustry.org with any questions.

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