Are European CLOs back from the dead?
Astonishing investor inflows into the loan market on both sides of the Atlantic since the beginning of the year have raised the tantalizing prospect of the CLO market returning to Europe.
Liberty Global’s $23.3 billion cash and stock bid for UK cable operator Virgin Media has been cheered by many in the capital markets. The shouting might, however, be loudest in an unexpected quarter – the European loan market. The fact that these two firms – among the largest and most familiar issuers in the high-yield bond markets – have opted to include a big loan component in the deal is being hailed as a watershed moment for the market.
In addition to £2.3 billion-equivalent of high-yield bonds, Virgin is raising $2.7 billion in what will be its debut US dollar loan and also syndicating a £600 million ($927 million) term-loan facility. When Liberty Global bought Unity Media in 2009 that deal was entirely financed with €2.65 billion of high-yield bonds, having no loan component at all. This deal is a reflection not only of the resurgence of appetite for US leveraged loans over the past year but also one of the first signs of green shoots in the beleaguered European loan market. If these shoots prove strong enough there is even the prospect that the European collateralized loan obligation market can now be encouraged to return from the dead.