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June 2022 | Issue 246
Analysis
CLOs
You seem familiar
Tanvi Gupta
Head of data journalism
Charlie Dinning
Data journalist
Sam Robinson
Head of research
The overlap between European CLOs has risen to 51.6%, but the largest issuers are only slightly more aligned to their peers at 55.19% — so bonds are proving to be an important differentiator
Some 41 European CLO managers went effective with new deals in 2021, in what was one of the busiest years of issuance across corporate debt and CLOs.
Increased deal flow has resulted in growing similarities between CLOs, with the average portfolio overlap between European CLO managers in 2021 hitting 51.63%, a touch higher than the 50% recorded for CLOs that went effective in 2020. However, the overlap has not strayed far from historical averages. The overlap figure was 51.7% in 2019.
KKR has the highest portfolio overlap with the rest of the European CLO market at 61.63%. The manager has consistently ranked among the top three in this regard. It has two deals in the data.
KKR has most in common with CVC (76.79%), Blackstone (76.73%) and Redding Ridge (76.18%). Another link between these four managers (which are among the largest on the continent) is that all are affiliated with private equity firms.
At the other end of the spectrum, BlueBay, Brigade and Barings have the least in common with KKR. Their overlaps are 46.78%, 48.69% and 50.15%, respectively.
Blackstone, Bain and CIFC follow close behind KKR for the largest overlap with the market on average. Their figures are 60.22%, 58.63% and 57.92%, respectively.
The managers with the greatest similarity are Blackstone and Partners Group. The overlap between them is 77.06%. Blackstone has four CLOs in the data, while Partners Group has three.
Top 10 managers’ exposures (%) to largest corporate debt issuers in 2021 CLOs
Managers are top 10 based on the size of their portfolios from deals that went effective in 2021. Loans are largest in our data (see methodology)
*Blackstone figures include data sourced from a December 2021 report
** Creditflux is a subsidiary of Ion Group
Capital Four does things differently
Capital Four is the only active European CLO manager based in Copenhagen (if you consider managers that have issued new CLOs in the last two years) and it has the least overlap with the rest of the CLO market: 42.08%.
The manager has the largest overlap with Credit Suisse Asset Management (55.14%) and the least with Brigade (29.17%). BlueBay is next in line in terms of low overlap at 43.43%. Capital Four has two deals in the data, while BlueBay has one.
Capital Four’s biggest exposure is to Altice (€14.1 million), one of the most-held corporate debt issuers. Its second largest exposure is to Tarkett (€11.8 million), which is held by just 20 managers in the data, with a combined exposure of €101.39 million.
Size doesn’t have to increase overlap
The European loan market is not as deep as its US equivalent. A European CLO manager says this means diversification between deals will be limited if you print high volumes. But there is always an exception. For European CLO managers with three or more deals effective in 2021, the average portfolio overlap with the rest of the market is 55.19%, but Hayfin Capital Management has an overlap of just 43.54%, despite being the fourth largest manager in our data.
51.6%
Average portfolio overlap for European CLOs issued in 2021
Redding Ridge is the only manager with five CLOs in the data. Blackstone and Palmer Square have four each. The managers have an average overlap of 54.14%, 60.22% and 55.41%, respectively, with the market.
For CLO managers with two deals, the average overlap is 52.79%. For managers with one CLO the average drops to 50.11%.
Considering the size of the European loan and bond markets, the European CLO manager base is densely populated: there are 41 managers in our dataset. By comparison, there were 94 managers in our US CLO report last month, and the overlap in that market stood at 37.7% for CLOs that went effective in 2021.
Market participants say European CLO overlap is likely to increase in coming years as more firms say they are considering launching CLO platforms in Europe.
Bonds make a big difference
If you’re worried about the sameness of European CLOs, fret not, because high yield bonds play a big part in portfolio construction, and European CLOs have more latitude in using notes (of the fixed or floating variety) than their US cousins. As always, PGIM sits atop the list of European CLO managers with highest bond exposure. This time, 28.5% of its portfolio is in bonds. However, only 19.41% of this pocket is fixed rate and, as a result, the manager is in compliance with its 20% fixed-rate bucket limit.
Napier Park Global Capital also has a high concentration of bonds in its portfolio, with a 27.7% exposure. This is a big jump up the table for the manager, which last year had the 12th largest exposure to bonds among European CLO managers. Napier Park has fixed-rate note concentration of 13.86% on average, against a bucket limit of 15%.
The largest jump comes from AlbaCore Capital, which has a bond concentration of 18%, the ninth largest in our dataset. Last year, for CLOs that went effective in 2020, AlbaCore only had 9.19% of its portfolio invested in bonds and was 33rd out of 52 managers for exposure to bonds.
28.5%
Percentage of bonds in PGIM’s 2021 CLOs
Other managers clearly favour loans. Brigade holds the least amount of bonds at just 1.9%. Recent debutant Bridgepoint is next in line, with 2.2%. Cross Ocean is continuing the Commerzbank legacy of small bond exposure, with 2.6% concentration among CLOs which went effective in 2021.
On average, European CLO portfolios have a fixed-rate bond bucket of 10%, but that is likely to change as recent new issues are increasing bucket limits and warehouses have also requested larger fixed-rate allocations.
Liberty Global and Altice are still the most popular European CLO credits. Liberty Global is in the lead with €676.41 million. Of the top 10 largest corporate debt issuers in the dataset, eight are repeats from last year, with Bio Group and Cerba Heathcare sneaking in for the first time. The 10 debt issuers to which 2021 CLOs have the highest exposure total €3.40 billion — or 12.33%.
But the largest loans are not necessarily held by the largest CLO managers. For example, Sound Point has avoided Altice and Verisure despite those being the second and sixth most held in European CLOs. And Hayfin has no exposure to Ion Group and Springer Science, which are third and tenth largest in our data.
*Blackstone figures include data sourced from a December 2021 report
Methodology
- Data includes European CLOs that went effective in 2021. Bond-flex deals, triple C-flex deals and reissues are excluded.
- For each pair of managers, the portfolio overlap figure is calculated from a comparison of the weighted average of common issuers across CLOs in the data. Overlap is based on issuer name.
- Figures are based on (or closest to) March 2022 trustee reports. Blackstone figures include data sourced from a December 2021 report.
- All data has been sourced from CLO-i and Moody’s Analytics.
- CLO manager merger and acquisitions that did not close by March 2022 have remained separate.
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Global credit funds & CLO's
June 2022 | Issue 246
Published in London & New York.
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