Barclays analysts say more CLOs and low rates will reverse trend toward bonds.
The leveraged loan market will see more activity next year than it has since the financial crisis began in 2008, according to a report from Barclays. Growth in the CLO market, combined with chronically low rates, could spur companies that issued bonds in 2012 to return to the loan market this year.
Barclays estimates that 2013 issuance will be as much as $250 billion, up from $221 billion this year and $158 billion in 2011. “Shareholder friendly” transactions like dividend recaps and leveraged buyouts will constitute up to $100 billion of next year’s total.
Barclays says that CLO managers will cram as many deals into 2013 and 2014, before the Basel III risk retention rules kick in and shut that market down. Barclays expects to see up to $75 billion in CLO issuance next year, a net $35 billion increase after accounting for the amortization of existing deals.
Barclays also thinks that loan defaults will be well below the long-term average of 4.5 percent among leveraged borrowers. The bank’s analysts say defaults could be as low as 2.5 percent.