The European Commission’s big push to revitalise Europe’s securitization market seems to be skipping CLOs, a sector which accounted for just under 50% of placed securitization issuance in the EU last year.
In March, the European Supervisory Authorities published a report which shook up the way CLO managers had been doing risk retention. Last week the Commission repeated the trick in bizarre style.
It published response to a question about risk retention from 2021, via the European Banking Authority website, overturning established market practice and leaving deals facing a scramble to comply with the newly published interpretation of the law.
GlobalCapital sources in the CLO market see both moves as no more than inconvenient for most managers, but if the Commission is so keen on getting securitization going, why is it suddenly seemingly making life so difficult for the market’s largest sector?
There’s more. The new definition of public deals is going to catch CLOs, obliging managers to report to repositories and cutting CLOs out of the benefits of new simpler templates for private deals.
Arguably, some of what the Commission has done is justified. It has always been odd that CLOs aren’t considered public, so that change is no surprise. On the recent risk retention debacle, the question to the EBA was phrased such that Commission’s answer was almost inevitable.
But it is still odd to overturn established market practice with an answer to a question from four years ago at the peak of holiday season.
Perhaps the explanation for this behaviour lies in how the Commission sees securitization. Invigorating the securitization market is not an end in itself, but rather the ambition is to boost Europe’s economy.
The original targeted consultation from the Commission which set recent reforms in motion mentioned CLOs just twice in 37 pages. A newsletter called “revitalising EU securitisation” published on June 27 by the Commission focuses on the ABS and SRT parts of the market.
It seems like the Commission is unconvinced that CLOs can really help the economy.