The CLOser - January 2014

The CLOser is Maples and Calder's industry newsletter focused primarily on current Cayman Islands and Irish legal issues relevant to the CLO market. In this edition of the CLOser, we will provide:

a 2013 US and European CLO market review and 2014 predictions; an analysis of warehousing facilities by our affiliate, Maples Fiduciary ("MaplesFS"); an update on FATCA for Cayman CLO issuers; and 2013 CLO deal lists. 2013 - A YEAR IN REVIEW1

US Market

The US CLO 2.0 market continued its impressive year on year resurgence in 2013 with approximately $82 billion of issuance (more than a 50% increase on 2012 issuance) across 179 CLOs from 91 different managers. Of those, 166 were issued via Cayman Islands registered entities, 12 Delaware and 1 Irish issuer.

There are now over 100 managers who have priced a US CLO 2.0. In 2013, the most active managers were CIFC and GSO, with five deals priced each, closely followed by Ares, Carlyle, CVC, BlueMountain, Columbia, Octagon, Golub and Oak Hill, pricing four deals each. Nearly a quarter of the deals were priced by first time CLO 2.0 managers.

Different arrangers were crowned in each of the first three quarters for most deals priced: Citigroup took Q1, Bank of America Merrill Lynch Q2 and JPMorgan Q3. In Q4 Wells Fargo, Citigroup, JPMorgan and Bank of America Merrill Lynch priced six deals each so the Q4 crown will come down to deal volume for those arrangers.

During 2013 Maples and Calder closed 63% of all US broadly syndicated CLOs.

CLO Equity Funds and Credit Funds

The boom in CLO equity funds and credit funds established to invest specifically in CLO securities continued throughout 2013. Maples and Calder represent a large number of asset managers who have formed such funds, whether regulated hedge funds, closed-ended funds, single investor bespoke funds or managed accounts, and we see a variety of structures and terms.

The credit market media also announced a large number of tie-ins between CLO managers and pension / retirement funds. Tie-ins have significant benefits for the managers who obtain a source of funding for, typically, the first loss on the warehouse and equity in the CLO across multiple deals. Retirement funds have been allocating more to credit investments during 2013, seeking to generate higher investment rates of return and, by partnering with one or more managers, securing control of allocations at the start of a deal. Bespoke manager-tied credit funds may also simplify an investor's internal investment reporting by enabling them to invest in a range of credit securities (primary and secondary markets) and report on the overall fund performance as opposed to line by line individual securities.

Having established a large number of CLO equity funds, credit hedge funds, dedicated PE funds and other opportunistic capital funds in recent years, Maples and Calder is in the process of compiling a CLO fund report on structuring from a Cayman Islands perspective and frequent terms and considerations, for print circulation in Q1 2014.

US Regulatory Issues

US regulatory issues continued to dominate both industry task force discussions and conference seminars during 2013. Amidst the Dodd-Frank risk retention and Volcker Rule discussions, the Cayman Islands also grabbed some of the limelight when, on 29 November 2013, the Cayman Islands government signed a Model...