On January 19, 2024, GoldenTree marked a milestone with a notable AAA print of 150 basis points (bps) on its GoldenTree Loan Management US CLO 19 deal. This tightest level since May 2022 sparked optimism for further AAA spread compression. However, four weeks later, most top-tier prints remain stuck around 150 bps, despite talks of numerous AAA investors returning to the market.
While the 150 bps level seemed tight at the time of pricing for GoldenTree’s deal, it’s worth noting that the corresponding 4-week moving average loan spread for the Morningstar LSTA U.S. B/BB Ratings Loan Index was also tight, sitting at 409 bps. This suggests that the 150 bps mark was largely in line with historical trends.
So, the question remains: why are US BSL CLO AAA prints still stagnant at 150 bps for managers with top-tier AAA prints? And where do we stand in terms of the loan index’s moving average spread?
The chart below depicts the 4-week moving average loan spreads for the Morningstar LSTA U.S. B/BB Ratings Loan Index since the GoldenTree deal. The current plateau could provide some insight into the persistent 150 bps prints beyond the usual demand and supply factors. In other words, the current stagnation at 150 bps for AAA prints merely reflects the prevailing conditions in the loan market.
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