Highland Capital Management is the latest U.S. firm to sell its European CLO assets, according to Bloomberg.

Highland follows in the footsteps of Resource America and Aladdin Capital, which sold their European CLOs at the end of 2010.

Highland raised four CLOs rated by Standard & Poor’s in Europe with an initial total size of €2.46 billion ($3.35 billion), according Bloomberg.

Stefan Prelog, a spokesman for the Dallas-based money manager, declined to comment.

In December, Aladdin handed over management of a €370 million ($505 million) CLO to Pramerica Investment Management, Prudential Fixed Income’s U.K.-based asset management business (LFN, Dec. 23, 2010). And Resource America sold the management contract for its Resource Europe CLO, a €300 million vehicle, to London-based Intermediate Capital Group (LNF, Dec. 22, 2010)

At the time, Christopher Allen, senior managing director and co-founder of Resource America's leveraged loan manager Apidos Capital Management, said in a release, "Selling the management contract for our European CLO will allow Apidos to focus on expanding our U.S. leveraged loan business."

Resource America recently announced that Apidos would purchase 100% of the ownership interests in Churchill Pacific Asset Management (CPAM) from Churchill Financial Holdings for $22.5 million, including five CPAM-managed CLOs totaling approximately $1.9 billion in assets (LFN, Feb. 15, 2011).

The performance of European loan funds lags returns in the U.S. About 90% of U.S. CLOs are in compliance with the terms of their agreements, compared with roughly 55% in Europe, according to Morgan Stanley.

European loan market participants are also concerned about a new rule in Europe, Article 122a of the Capital Requirements Directive, which calls for originators, sponsors or original lenders in an arbitrage CLO to retain at least 5% of the vehicle’s equity on their balance sheet (LFN, Feb. 3, 2011).

The rule, which was introduced at the beginning of the year, will make creating CLOs—the primary buyers of institutional loans in Europe prior to the financial crisis—more expensive and risky than in the past, when originators could pass along any and all of the risk to secondary investors.

This comes just as the European loan market has begun to improve after roughly three years of draught. The amount of loans issued in Europe peaked at €165.5 billion ($226 billion) in 2007, up from €47.7 billion in 2003, according to Standard & Poor’s Leveraged Commentary & Data.

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