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News
CLO managers play down Santé Cie concerns but case highlights fraud risk
by Kathryn Gaw
CLO managers and investors have shrugged off concerns that the recent turmoil at French homecare company Santé Cie represents the start of a default wave in Europe.
However, the case has reawakened concerns around the risk of fraud in CLO portfolios, nine months after JPMorgan CEO Jamie Dimon used his infamous cockroach analogy to warn about fraudulent borrowers in the private credit markets.
In early July it was reported that Santé Cie was subject to a EUR 46m asset freeze pending the outcome of a fraud investigation by the French government. It has since been suggested that the fraud allegation relates to an accusation of bribery.
Market jitters were on full display in the hours and days that followed this announcement. The value of Santé Cie’s Term Loan B plummeted to under 60 cents. However, it rebounded to around 80 cents after a 6 July call with lenders. According to reporting from Debtwire, the messaging from the company during the call was that it is ‘business as usual’, while issues stemming from the investigation were said to be ‘isolated’.
Santé Cie: Term Loan B bid price
Defaults from fraud tell you something about the economy
Michael Schewitz
Co-portfolio manager
Investec Bank
One European CLO manager told Creditflux: “[It’s not] an existential crisis. And I think the loan [repricing] reflects that.”
Another CLO manager — who spoke to Creditflux after the call took place — said they were not worried about the risk of contagion across healthcare sector loans and felt that the situation wasn’t as serious as it first seemed.
Santé Cie’s largest creditors include Partners Group, Blackstone, Benefit Street Partners, Five Arrows and Palmer Square, according to Creditflux data.
During the February 2026 reset of Term Loan B, a number of CLO managers took the opportunity to divest their holdings in the company.
However, according to market sources and Creditflux data, many European CLO managers remain exposed.
Michael Schewitz, co-portfolio manager and CLO investor in the credit investment department of Investec Bank said that some defaults are inevitable in a CLO portfolio of 120-150 names.
“Defaults have been surprisingly low in CLOs in my opinion over the last few years,” he said. However, he added that the market remains on alert for new instances of fraud. “When you start to see defaults from fraud that tells you something about the economy,” said Schewitz.
“Business is bad so executives are tempted to do dodgy things that they would not do when times are good.”
