Why CLOs Matter (Last of a Series)

They’re big, they’re bad, and now that they’re back, the end of the world is upon us.

No, we’re not referring to the latest Transformers instalment: Age of Extinction.Though we’re compelled to point out that seems an equally appropriate headline for the obituary so many market observers seem eager to write about CLOs’ demise-by-Dodd-Frank.

But just as film critics heap scorn on the machine vs. machine franchise (even as the three prior films grossed over $3 billion world-wide), collateralized loan obligations face significant regulatory headwinds and media nay-saying despite being extremely popular with investors, managers, and arrangers.

Yes, as this bull loan market heads into its fourth year, signs of rational exuberance abound. JPM now estimates as much as $100 billion in CLO issuance will hit the market during 2014, up sharply from earlier estimates.

Not just larger overall volume, but the number of new $1 billion (or more) vehicles has caught analysts by surprise. Onex Credit Partners, Apollo Credit Management, and this week, CSAM, have printed such behemoths, with others rumored in production.