The global market for new issue collateralized loan obligations may not return to its peak of pumping out 150 deals each year, but market players are confident it will remain a viable sector.
“It will happen,” said Jeff Boswell, portfolio manager at ICG said at the Global ABS conference this morning. “It’s really a matter of when.” ICG last year ran Europe’s first post-crisis CLO, a book of legacy loans scooped up from the Royal Bank of Scotland’s balance sheet.
He expected more legacy bank loan deals to roll out in the region over the next 18 months to two years. “Speaking to investors, there really is appetite,” he said. Shawn Cooper, global markets ABS trading at Deutsche Bank in London, agreed. “We are talking to the exact same guys, even if we haven’t seen them in awhile,” Cooper said, referring to the pre-crisis CLO investor base.
Deutsche Bank has been tapped to market European Capital’s deal, ECAS 2011-1, a €900 million ($1.31 billion) CLO of legacy loans (TS, 4/26). “We have seen healthy demand,” he said. “This is not a question of if, but when.”
The U.S. sector is further along than Europe in its recovery, but it is also tapping innovation to drive a revival. “We’ve seen more innovative structures,” said Jonathan Wishnia, attorney at Lowenstein Sandler, pointing to features that include the ability of collateral mangers to replace senior tranches as interest rates reset. “It’s really innovative and brand new.”
James Galowski, partner at Stone Tower Capital, said innovations, including club deals and so-called “turbo features” in subordinate tranches, could again provide a boost to the sector. “Boilerplate deals will not bring the market back,” he said.