U.S. Managers Crowd Euro CLO Mart
The European market for collateralized loan obligations is becoming ever more competitive as new managers move in from the U.S. and collateral becomes even more scarce.
The European market for collateralized loan obligations is becoming ever more competitive as new managers move in from the U.S. and collateral becomes even more scarce. "It's a competitive disadvantage if a U.S. manager is not in Europe," said Tosh Burns, head of structured product origination for Europe, Middle East and Africa at Bank of America in London.
Rating agencies are growing increasingly concerned about managers being able to reach their collateral targets after ramp up. "We do worry about it as it becomes more difficult to source assets and the influx of American managers isn't helping," said Anne Le Henaff, senior analyst at Moody's Investors Service. She noted the agency is rating more combination notes, which include a significant proportion of equity, making it all the more important to assess the impact on the rating of negative carry during the ramp-up period. Mark Moffat, senior managing director for CDOs at Bear Stearns in London, noted it is now inevitable for a manager to have a 5% cash basket at any time due to the underlying inefficiencies of the loan market.
Simon Perry, managing director for European CDOs at IXIS Corporate and Investment Bank, argues there is an important structural element to manager differentiation. "The goal is to make the universe of assets as large as possible so as to generate performance on the basis of credit judgment," said Perry.