Institutional leveraged loan managers now account for about 20% of the market in Europe but the banks that dominate the action are not ready to give up control of a product they see as highly profitable. For example, Mizuho Corporate Bank is said to be putting together a CLO and is raising equity for a deal. "This would be an adjunct to [Mizuho's leveraged loan] business. It makes use of expertise and maximizes fee income," said a source familiar with the plans.
Mizuho reportedly will be managing third-party assets in actively-managed deals. Merrill Lynch is underwriting the proposed transaction, said the source. The collateral would be both Mizuho-led deals and outside loans. Officials at Mizuho declined comment. A Merrill CDO banker referred questions to the press office, which did not return calls by press time.
Mizuho would be following a model started by AIB Capital Markets and used by rivals such as Bank of Ireland (BOI), BNP Paribas,The Royal Bank of Scotland and NIB Capital Bank. "If you look at why we set up the Partholon CLO last year, it was to build on the infrastructure we had in place and develop a different income stream," said Tom Hayes, head of acquisition finance at BOI. He explained that the critical factor for anyone looking to set up a CLO is to have the infrastructure in place and be able to source the assets.
This model is in contrast to the U.S. market, where the trend has been towards the growth of the institutional segment, with the exception of middle-market finance companies such asAntares Capital. There has been significant growth in institutional managers in Europe such as PIMCO, Prudential M&G and Alcentra Asset Management and Hayes still believes the institutional market will grow, increasing liquidity. But the pace of growth will not be as fast, said one CDO structurer, who explained banks in Europe continue to have an appetite for loans. "We're asset hungry. Banks monopolize the syndication of leveraged loans and it's an attractive business line," said a banker.