Unlike the U.S., where CLO issuance lagging 2015, issuance of European collateralized loan obligations is running slightly ahead of last year.
Through Monday, European CLO managers raised €10.1 billion across 25 CLOs, up slightly from €9.6 billion worth of deals in the same period a year ago.
Participants at IMN’s ABS East conference are unsure how long it can keep up the pace, however.
“To a certain extend the European CLO has had a good year this year, certainly if you compare it to the drop off in issuance in the U.S.,” said Andrew Bellis, managing director and partner of leading UK CLO firm 3i Debt Management. “Can it continue at these levels? I think if there’s good investor demand .. I think issuance levels can continue. But I think it’s hard to see a substantial increase without a fairly meaningful [increase] in loan issuance. I think that’s the barrier to growth in the European market.”
The European loan issuance is down as much as 24%, noted BNY Mellon managing director Maeve O’Brien.
The cautious optimism in Euro CLOs was apparent among live polling questions of the audience at the European CLO panel. Three-fourths of partiicipants were purchasers of Euro-denominated CLO 2.0s – a market that didn’t snap back from the financial crisis until 2013.
O’Brien and Bellis were among panelists on the concluding day of the ABS East industry conference held this week in Miami, discussing the quietly steady year that Euro managers have experienced amidst a substantially convulsive year for European economic developments. Besides the “Brexit”, there is also an ongoing €80 billion a month corporate bond purchase program by the European Central Bank.
While the ECB’s purchases were limited to issuances from investment-grade firms, high-yield bonds (which are still permitted in Euro CLOs not subject to the U.S. Volcker rule restrictions on bond buckets in domestic portfolios) rose on the coattails on the stimulus policies.
European CLOs could also be impacted by a controversial European parliament proposal to boost risk-retention levels to 20% - number considered almost unworkable to sustain a CLO market, according to many market participants.
The European market is still dwarfed by U.S. issuance which totals $48.4 billion year-to-date through 113 deals.