By Kristen Haunss
NEW YORK, July 14 (Reuters) - Citigroup was the top arranger of US Collateralized Loan Obligations (CLOs) in the second quarter as issuance fell more than 41% from the same three-month period in 2015, according to Thomson Reuters LPC Collateral data.
The bank arranged US CLOs this past quarter for managers including Apollo Global Management, Voya Investment Management and Octagon Credit Investors, according to the data. It ranked sixth for the first three months of the year after topping the league table in 2015.
As the biggest buyers of leveraged loans, CLO volume affects appetite for the US$880bn loan market. Institutional loan issuance fell 35% to US$294.47bn in 2015 from 2014, according to Thomson Reuters LPC data.
CLO volume is forecast to fall in 2016 by more than 60% from the US$98.5bn arranged in 2015 - JP Morgan predicts as little as US$35bn this year - as the market prepares for risk-retention rules, which take effect in December and require managers to hold onto 5% of their funds.
There was about US$18bn of CLO issuance in the second quarter, up from the first three months of the year when US$8.2bn of deals were arranged, according to LPC Collateral.
There was US$26.9bn of US CLOs arranged this year through July 8, not including refinancings, down 56% from the US$61.4bn during the same time period in 2015, according to the data.
"There has been less demand for CLO equity," which has been affecting volume, Bjarni Torfason, a CLO analyst at Deutsche Bank in New York, said in a telephone interview. He forecasts 2016 issuance of US$45bn to US$50bn.
Risk-retention may also be affecting volume, especially for smaller managers, he said.
Wells Fargo ranked as the second most active CLO arranger this past quarter on US$2.2bn of volume, up from fifth after the first three months of the year, according to LPC Collateral data. JP Morgan came in third, down a spot from the first quarter, with about US$1.5bn arranged.
Morgan Stanley, which topped the first quarter league table after arranging four US CLOs for 19% market share, ranked fifth in the most recent quarter, according to the data.
CLOs, which pool loans of different credit quality, sell slices of the fund of varying seniority, from Triple A to B, to investors including insurance companies. The most junior and riskiest portion of the fund, the equity slice, is paid last with what is left over after the fund's bondholders receive their distributions.
Spokespeople for Citigroup, Wells Fargo, JP Morgan and Morgan Stanley all declined to comment.
(Reporting by Kristen Haunss; Editing By Michelle Sierra and Jon Methven)