European Investors Sizing Up U.S. CLOs

According to a recent Asset-Backed Alert (ABA) article, European investors are showing an increasing interest in U.S. CLOs. ABA explains that several factors are at play in drawing European investors toward U.S. CLOs. With new-deal supply in the U.S. on the upswing, issuers want to ensure they have an audience for their offerings. At the same time, European investors are looking for alternatives to their home markets, where supply is light and spreads are tighter.

ABA goes on to explain that the activity has been partially driven by some managers attempted to structure their deals so that they comply with the Dodd-Frank Act's Risk Retention rule and a similar European Union directive. However, compliance with both rules comes with a downside, according to the article. Should the Trump Administration move ahead with a possible reversal of the Dodd-Frank rules, an issuer that also adhered to the E.U. measure would be unable to capitalize by selling its retained positions.

As long as the transactions are economical under current regulations, however, the view of most managers is that they should move ahead. "Our attitude is the [Dodd-Frank] rule is in place, so let's make the best of it," one manager said.

Tomorrow, July 21st, SFIG will be holding a call for our CLO Committee. If you would like to join this committee, please contact Alyssa Acevedo.

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