CLOs remain a hot commodity in Europe, as both veteran and first-time managers have launched or are gearing up new vehicles for this year. This is in large part due to the positive credit risk profile and strong availability of leveraged loans in the European market. Also, the reasonably stable spreads offered by CLOs are attractive to fund managers, notes a recent report by Standard & Poor's.

But for existing CLO fund managers, today's bullish capital market conditions can be a double-edged sword. S&P reported that a whopping 16.5% of the institutional loans in its European leveraged loan index were prepaid during the second quarter of 2005 - up from about 8.2% in the first quarter.

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