JPMorgan updated its European collateralized loan obligation overlap study and found that despite an increase of almost 20 CLOs analyzed, diversification remained steady at 23.7%, compared with last year's overlap figure of 26.4%. The report explains that diversity across European CLOs was not hampered by record growth and greater demand for assets. It does not look at default risk or recovery potential.
The bank sampled about 40 European cash arbitrage CLOs, worth E14.5 billion (about $17.5 billion), which was about two-thirds of issued volume by transaction count and 55% of issued volume by par amount ($30 billion). It excluded portfolios with large bond buckets and SME CLOs. It found that there was 9% overlap of all mezzanine assets and overlap among vintages varied between 18-25%. The top two sectors found were industrials and telecommunications, media and technology. The CLO sector in Europe has grown immensely in the last few years, from about 11 CLOs in 1999 to 42 in 2005, according to Dealogic.
Europe continues to remain a popular destination for U.S. investor shops. In 2005 Highland Capital Management finalized its acquisition of ING Capital Management's (ICM) European loan business from ING Wholesale Banking; Babson Capital Management acquired Duke Street Capital Debt Management; The Carlyle Group completed its first European CLO in March and GoldenTree Asset Management opened a London office in June. Eaton Vance also opened up a shop in London last fall, but does not currently do 100% European CLOs. The deals analyzed, launched between 2001 and 2005, came from some familiar managers including: Carlyle Investment Management, Babson Capital Europe, Alcentra, INVESCO, Highland Capital Management Europe, GSC partners and Prudential M&G.