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April 2023 | Issue 253

CLO market turns international as new investors land

Michelle D'Souza headshot
Michelle D’souza
Senior reporter
The global CLO market attracted new investors over the first quarter of 2023, according to market sources, while others have moved across the capital stack or into different regions than those to which they have been accustomed.
Middle Eastern money, including bank First Abu Dhabi, is said to be making its way into senior US CLO tranches.
This isn’t the first time Middle Eastern investors have made their way into the asset class, however — these investors have historically had a penchant for CLO equity, given its higher risk-return profile.
It’s not just US CLOs that are attracting global investors. Japan Post, a prolific CLO investor, is understood to have invested directly in its first CLO in Europe during the first quarter. Sources say it chose Intermediate Capital Group’s ICG Euro CLO 2023-1.
“It’s not making up for what US banks did in 2021”
Lauren Basmadjian, Co-head of liquid credit and head of US loans and structured credit | Carlyle Group
Other new Asian investors are also coming to the market, sources say. New Chinese investors are said to have invested in US CLOs for the first time this first quarter, while regional banks in Japan are also entering the market, preferring to start with US CLOs.
Alongside new investors, large Japanese banks are making their presence known. Norinchukin returned to European CLO investing with CVC’s deal CVC Cordatus Loan Fund XXV-A in February via Citi, after pulling back from the deal in Q4 amid volatility.
The bank is understood to be active in US CLOs after backing deals from Ares Management and Credit Suisse Asset Management in March. Meanwhile, Sumi Life is said to have had triple A capital for one or two European deals in the first quarter, which it ploughed into Barings Euro CLO 2023-1. That deal printed its senior notes at market wides of 220 basis points.
Despite the promising sight of new CLO investors, at Creditflux’s CLO Investor Summit, Carlyle Group’s co-head of liquid credit and head of US loans and structured credit, Lauren Basmadjian, pointed out that some domestic buyers of CLO paper have pulled back. “It’s not making up for what US banks did in 2021,” she said on a panel. However, the good news is that panellists at the conference were optimistic that Silicon Valley Bank’s fallout could attract more investors to CLOs.
According to one European CLO arranger, US-based investors are sticking to US deals despite the spread pick up available when switching from US tier one CLOs to European tier one deals.
“The currency swap makes European CLO triple As more attractive, but US investors prefer to go down to tier two to pick up spread,” he says.
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Global credit funds & CLO's
April 2023 | Issue 253
Published in London & New York.
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