European secondary volumes rise through ups and downs

Michelle D’souza

Reporter

Europe’s secondary CLO market has been boosted by elevated supply as primary issuance trickles amid market volatility. Sources indicate that around €370 million of paper appeared on b-wics across the capital stack in each of the first two weeks of May.

Weekly volumes have dipped to around €290 million as Creditflux goes to press. Still, this is in contrast to only four new issue CLOs pricing in May: Capital Four CLO IV, RRE 12, Northwoods Capital XXVI Euro and Invesco Euro CLO VIII, totalling €1.65 billion.

“In early May, markets were firm. Risk rallied in for about a day but then we had a strong reversal,” says Andrew Goldstone, head of European CLO trading at Bank of America. “On Wednesday [18 May], 60% of weekly b-wic notional was on one day and we saw decent trades in lower mezzanine tranches, but weakness was prevalent across the stack. CLO triple As have been trading around 140-160 on a DM [discount margin] basis, double Bs moving from 800/900 and single Bs 1,050-1,200 DMs with some wider.”

“Risk rallied in for about a day but then we had a strong reversal”

Andrew Goldstone, Head of European CLO trading | Bank of America

Cash prices for double Bs were briefly in the high 70s, but have mostly been around the 80s. For single Bs, cash prices were similar but with a few more prints in the high 70s.

On a relative value basis, New York-based Goldstone says triple Bs at an 89-96 cash price look attractive.

Secondary European CLO supply has been driven by several factors, he says, including US money exiting Europe, investors facing small redemptions and raising cash if they believe the market will go wider.

Volatility in mezzanine and equity tranches has hurt junior debt and equity CLO investors, but opportunities lie ahead.

“The drop in valuations has been painful but investors are looking at CLOs versus broader asset classes, such as high yield and investment grade, and we’ve seen some inflows in our mezzanine fund,” says a CLO investor. “Stress periods have historically been good for us.”

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Global credit funds & CLO's

June 2022 | Issue 246

Published in London & New York.