April 27, 2020 / 8:46 AM / a month ago

European new issue CLO market seeks to reopen

LONDON/NEW YORK, April 27 (LPC) - The new issue European Collateralized Loan Obligation market, paralysed since early March amid the coronavirus pandemic, is looking to revive with new funds aiming to price as soon as this week, according to sources.

The €129bn European CLO market has been under pressure as the Covid-19 healthcare crisis spread around the globe, interrupting supply chains, closing retail operations, and forcing companies to fire workers, which has led to massive downgrades of businesses whose loans CLOs purchase. The last new-issue European CLO priced the second week of March, according to LPC Collateral data.

European CLO issuance of about €5.8bn in the first quarter was down more than 15% from the same three-month period in 2019, according to LPC Collateral data. US CLO issuance was down 48% during the same time frame.

Participants in Europe are optimistic that the market could reopen after the larger US$680bn US CLO asset class started to show signs of life, with at least nine US CLOs priced in April, according to LPC Collateral data.

Apollo Global Management’s Redding Ridge Asset Management is looking to price a new European CLO. BNP Paribas is arranging the fund, which is expected to be about €300m in size, according to two sources.

Additional managers are also looking to price new CLOs in the coming weeks, according to one of the sources.

An Apollo spokesperson declined to comment. A BNP Paribas spokesperson could not immediately be reached for comment.

Issuance on both continents came to a halt in March as volatility spread across markets.

The LPC Top 40 Leveraged EMEA loans index fell 20% this year to an average bid of 78.76 on March 19, the lowest level since June 2009. It has since rebounded to 91.82 April 24. The LPC 100, a cohort of the 100 most liquid loans in the US, fell more than 21% this year to an almost 11-year low of 77.87 cents on the dollar on March 23 before also rebounding.

Some firms were able to buy assets at a discount, and as loan prices improved, the US CLO market began to show signs of life.

Blackstone Group’s GSO Capital Management priced its Stratus CLO 2020-1 fund on April 2, the first US CLO since early March, according to LPC Collateral data.

Two CLOs from Redding Ridge, as well as deals from GoldenTree Asset Management and PGIM, among other managers, followed, according to the data.

Market participants are optimistic the European CLO market will soon reopen, though with structures and documents in line with the current environment.

“With market sentiment fluctuating as the Covid-19 effects evolve, CLO structures and their associated documents are being reassessed to adapt to the current market landscape,” S&P Global Ratings analysts wrote in an April 21 report. (Editing by Michelle Sierra and Christopher Mangham)

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