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Citi anchors CLOs as it chases arranger mandates in Europe
by Lisa Lee & Shant Fabricatorian
Citigroup was once the dominant arranger in the European CLO market. Now, after years away from the top perch, the bank is angling to regain market share and its former leading status.
The US bank is brandishing an attractive lure: the might of its balance sheet. Citi is offering to purchase CLO triple As and offering to anchor new deals, according to people familiar with the matter who aren’t authorised to speak publicly. Meanwhile, its bankers are offering delayed draw options, which should help European CLO managers boost equity returns. According to a source at Citi, Citi Treasury has not purchased European CLO AAAs.
“These are mandate winners,” said a CLO market participant.
Citi’s efforts are already shaking up the arranger rankings. The bank moved up to the top spot in the first quarter of 2024, a rapid climb from the sixth position it recorded last year, according to Creditflux data.
Citi’s stumble occurred soon after it lost CLO banker Laura Coady to Jefferies in 2020. From its clear leading position, Citi slipped to fifth. Meanwhile, Jefferies came from nowhere to climb to second in the arranger rankings, and has become a leading bank in Europe for CLOs.
Citi: after losing Laura Coady to Jefferies, the bank slipped to fifth in the rankings
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Citi’s CLO bankers have been at something of a disadvantage for the past two years. The bank wasn’t buying CLO triple A paper like many rivals. Citi’s treasury pulled back from the CLO triple A market in early 2022. In contrast, other arrangers, especially European ones, began to buy a chunk of the CLO triple As their bankers were arranging.
“It was difficult to place CLO triple As in the past two years. Buyers were sparse,” said a CLO manager. “It’s hugely helpful to have a bank offering to anchor the triple As.”
This year, Citi has been willing to buy as much as EUR 100m of triple As of the deals it is arranging, according to people familiar with the matter. BNP Paribas, Barclays, NatWest and Bank of America are just some of the other banks that buy triple A paper from deals they arrange.
Citi has also outpaced its competitors in developing a triple A delayed draw feature, where Citi’s funding backstop allows the manager to avoid cash drag on the equity tranche during the deal’s ramp-up.
In its implementations so far, Citi has offered to hold around EUR 75m to EUR 85m of triple As for up to three months before the manager is required to draw down the tranche, market sources said.
Citi arranged five European deals in the first quarter, with three incorporating a delayed-draw.
Citi declined to comment.
