Historically, CLOs have been predominantly collateralized by Broadly Syndicated Loans (BSLs). As of late, however, there has been a marked uptick in middle market CLOs. Walkers' CLO group has been actively engaged in this area by representing existing middle market CLO managers as well as partnering with a number of CLO managers to launch their debut mid-market CLOs.
So far this year there has been almost $9 billion of issuance of middle market CLO paper with this surge being fuelled by, amongst other factors, capital in-flows and the introduction of debut, and extremely active, middle market lenders providing collateral for CLO managers. In the hunt for yield, CLO managers who traditionally issued BSL CLO's have identified the middle market space as an area of diversification and the market has welcomed the first middle market deals from some major players during the course of the year.
Fitch reports that some of the lifts in weighted average spreads in BSL CLOs can be traced to the increase in investment in smaller loans with higher yields and whilst the actual percentages of middle market loans within BSL CLO's cannot be calculated with certainty, exposure to these loans certainly seems to be increasing. The love affair with the middle market is blossoming and seems set to continue for a while longer.
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