The market for collateralized loan obligations (CLO) is back in full swing after more or less freezing in March and April last year. The bulk of leveraged loans used to finance private equity buyouts generally end up packaged into CLO products, making the volume and pricing of new issuances in the CLO market a crucial component of a vibrant dealmaking environment.
The volume of CLO issuances over the past two quarters has rebounded to levels last seen in 2019, and spreads have narrowed to pre-pandemic levels as pricing benefited from low interest rates, even with the recent surges in Treasury yields.
At these levels, the conditions in the CLO and leveraged loan markets are setting up another tailwind for private equity deal flow. Adding to this are favorable financial conditions thanks in part to soaring equity markets and lower volatility.
With above-average economic growth expected over the next couple of years, the likelihood of an infrastructure spending package and the Federal Reserve assuring markets of a continued accommodative monetary policy, a robust CLO market will only add more fuel to a robust private equity dealmaking environment this year and beyond.
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