Japan CLO Whale Nochu Readies Global Return After UK Selloff

A Japanese agricultural bank is planning to resume its purchases of bundled leveraged loans in the US and Europe, after pausing last year when UK pension funds were dumping their holdings, according to people with knowledge of the matter.

(Bloomberg) — A Japanese agricultural bank is planning to resume its purchases of bundled leveraged loans in the US and Europe, after pausing last year when UK pension funds were dumping their holdings, according to people with knowledge of the matter.

Norinchukin Bank is talking to money managers that package loans into bonds known as collateralized loan obligations, said the people, who asked not to be identified as the transactions are private. The bank, also known as Nochu, was once one of the biggest CLO buyers in the world, and is looking at resuming purchases in the coming months.

Its return to the market would be a positive for money managers that struggled to find buyers for CLOs in the second half of last year. Nochu buys the safest tranches of CLOs, those rated AAA, and is often a key player in ensuring that sales get done. Its recent absence was one reason that issuance of US CLOs fell about 30% in 2022.

A representative for Norinchukin Bank declined to comment when contacted by Bloomberg.

In recent weeks, some US banks, including JPMorgan Chase & Co., have also resumed buying. Growing demand has helped US CLO issuance reach $6.47 billion so far this year, according to data compiled by Bloomberg, up from the $4.9 billion priced at this time in 2022.

Amid the increased buying, CLO securities have seen their risk premiums shrink. In the US, the top rated portions of new issue bonds, or AAA tranches, are being marketed at around 1.75 percentage points, or 175 basis points, while in December similarly-rated securities were sold at more like 265 basis points.

Demand has also been strong in Europe for the three deals that have priced so far this year. The top-rated bonds tightened 50 basis points from their December highs, according to Bloomberg data.

Nochu has been in and out of the market over the last few years. In 2019, Japanese regulators started asking lenders about their holdings, because it was alarmed at how much the firms had acquired. Soon after that, Nochu cut back its purchasing. Then it resumed buying, and ramped up a bit more in 2021. Even so, it was buying less than it had in the years leading up to 2019.

In October 2022, UK pension funds started dumping CLOs and other assets to meet margin calls, forcing prices down and spurring Nochu to pause its buying of new deals in the US and Europe. It stepped back quickly, pulling out of investing in a new transaction being sold by CVC Credit Partners in an unusual move, Bloomberg reported.

Nochu’s absence was felt in a market already dealing with the departure of major US banks, which were among the biggest buyers of the securities in 2021.

–With assistance from Scott Carpenter, Adeola Eribake and Ayai Tomisawa.

(Updates with details on Nochu’s CLO buying in paragraphs eight and nine)

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