Although European issuance has trailed issuance in the US, panelists at Private Debt Investor’sCapital Structure Europe conference claim the European CLO market offers better value.
“The supply of assets is OK for the US. The demand for the CLOs exceeds the size of the assets however,” said Colin Atkins, managing director at The Carlyle Group. “The better value is in Europe.”
In the US, firms have closed on record volumes of as much as $55 billion in CLOs through the end of September, according to reports. Unfortunately, the amount of capital being put to work exceeds the demand for capital, which will likely have an effect on performance, panelists said.
“One of the big problems in the US market is that the supply demand imbalance is worse there than it is in Europe,” said Atkins.
Even though Europe might offer better value, that market has yet to reach its pre-crisis heights. European CLO issuance for the year stood at €4.5 billion across 14 deals, according to S&P data cited by The Carlyle Group earlier this month.
“The US market is 10x the size of the European market … but you have to remember, the US market restarted two or three years before the European one did,” says Andrew Bellis of 3i Debt Management. “We’ve already had an upturn. We had no market for the last few years and now we have a market.”
European regulation – in particular the Capital Requirement Directives – has depressed the European CLO market too, panelists agreed. Many investors in CLOs were waiting until forthcoming EU directives had been implemented early next year before deciding whether to invest in CLOs, they said, which had led to a tail-off in issuance in the final quarter.
Oliver Smiddy contributed to this report.