A number of European CLOs issued before the financial crisis are ripe for redemption, and this could free up loans to be used as collateral in new deals, according to Moody’s Investors Service.
In research published this week, Moody’s said that over 80% of the 16 European collateralized loan obligations issued pre-crisis that it rates are entering their reinvestment periods by the end of this year. As these deals begin to amortize, or pay down the principal of senior notes, the returns of the most subordinated trances will diminish. This, combined with the strong performance of the leveraged loans used as collateral, will motivate equity holders to call so-called CLO 1.0 deals. (CLO equity holders typically have call rights to deals.)