It’s been a long time coming, but Europe is about to see its first collateralized loan obligation since the financial crisis.
Cairn Capital, a London-based asset manager, is preparing a cash flow CLO with a targeted par balance of €300 million, according to a presale report published today by Standard & Poor’s.
Credit Suisse is the arranger of the deal, which is expected to close in March.
Cairn CLO III will be the firm’s third deal, and the first one it has brought to market since August 2007. The European CLO market collapsed shortly thereafter as spreads on bonds issued by these deals ballooned, making them an uneconomical way to raise money. The introduction of a regulatory requirement for managers to retain exposure to CLOs has discouraged the formation of new structures. There is also a dearth of commercial lending in Europe, making collateral for new deals hard to come by.
As a result, the region has so far been passed by as the U.S. market for CLOs has taken off, with some $55 billion issued in 2012.
It would appear that finding buyers for the subordinated tranches of European CLOs remains a sticking point. Only one class of securities issued by Cairn CLO III, a €181.5 million tranche, is rated by S&P. It carries a preliminary ‘AAA’ and is being offered at at six-month Euribor plus 140 basis points, according to the presale report.
Unrated tranches of CLOs are typically either retained by the sponsor or privately placed, and there has been talk of a hedge fund buyer.
Cairn CLO III will be backed by a revolving pool comprising euro-denominated senior secured loans or bonds issued by borrowers located primarily in Europe. As of Feb. 14, Cairn had identified €233 million, or 77.74%, of the CLO’s collateral but had only committed to purchase €89.1 million.
The deal has a three-year reinvestment and is non-callable for two years.
Cairn’s two other CLOs have total assets of $2.9 billion, according to S&P.