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Europe CLO Market Kicks Off 2019 with €509M Deal

Market pros see leveraged loan default rate holding at low levels

S&P: BBB downgrade risks in Europe look manageable

As specter of rate cuts grows, investors retreat from leveraged loan asset class

Retail investors flock to US high yield bond funds with $1.8B inflow


Europe CLO Market Kicks Off 2019 with €509M Deal

Europe’s first collateralized loan obligation vehicle of the year priced on Friday. Barclays printed an upsized, €509 million CLO for Credit Suisse Asset Management. The triple-A tranche of debt priced wider than the last anchored deals of 2018. The deal was upsized by roughly €100 million.

Activity in Europe’s CLO new-issue market should continue to pick up considerably, as details of four new deals emerged last week from CELF Advisors, Guggenheim, ICG, and Blackstone/GSO, with the latter also releasing price guidance today.

CLOs are special-purpose vehicles set up to hold and manage pools of leveraged loans.

The special-purpose vehicle is financed with several tranches of debt (typically a ‘AAA’ rated tranche, a ‘AA’ tranche, a ‘BBB’ tranche, and a mezzanine tranche) that have rights to the collateral and payment stream, in descending order. In addition, there is an equity tranche, but the equity tranche usually is not rated.

CLOs are created as arbitrage vehicles that generate equity returns via leverage, by issuing debt 10 to 11 times their equity contribution.

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