European public CLO issuance has declined to virtually zero from more than €80 billion ($108 billion) in 2007 and Unicredit analysts said there is no progress by way of revitalizing issuance.

According to Unicredit, more than 50% of European CLOs are backed by SME loans in Germany and Spain as well as by leveraged loans (17%).

The dearth is happening despite sentiment having markedly improve in the secondary market environment, with spreads tightening significantly.

"Secondary market activity has sprung back to life in March, with spreads tightening further," analysts said. "Especially real money accounts are returning and becoming more active as of late, also with respect to lower rated mezzanine tranches, for example in the leveraged loan universe."

They added that in Europe, leveraged loan prices have held up quite well recently, which took away some pressure with respect to IC/over collateralization levels incorporated in leveraged loan CLOs.

Moreover, with ongoing extensions/restructurings of loan exposures, the refinancing problem has, for the time being, eased somewhat in the European leverage loan CLO universe, which is also supported by improving liquidity on the loan market.

The opening of the high yield market has abated some of the refinancing risk for the more solid names in the underlying portfolios.

Leverage loan CLOs, however, are not immune to refinancing risks, which are looming specifically in 2013-2015 in Europe. European leveraged loans rated 'B-' or lower will overall remain exposed to relatively high credit risk.

"These exposures may see refinancing become costly. In a more bearish scenario, however, refinancing of exposures rated below single B- might even become impossible," analysts said.

The uptake in secondary trading hasn't led to a primary market revival. This is becasue primary spreads on CLOs backed by SME and leverage loan exposure are still too high to allow for public issuance at the moment, analysts said.

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