JPMorgan Chase & Co. more than doubled its 2013 issuance forecast for collateralized loan obligations in Europe to as much as 10 billion euros ($13 billion).
The revision from an earlier 4 billion-euro target follows a 2.14 billion-euro “boomlet” in sales since July, compared with 2.4 billion euros of CLOs issued in the first half of this year, JPMorgan analysts led by London-based Rishad Ahluwalia wrote in a research note on Aug. 9.
Money managers are forming CLOs as issuance of other asset-backed debt such as commercial or residential mortgage-backed bonds is slowing, pushing investors to the funds backed by leveraged loans. Sales of CLOs are the most since the 2007 peak of 35 billion euros before the financial crisis.
“More European ABS investors could look to CLOs,” the analysts wrote.
European CLOs are also the top providers of securitized notes rated below AAA this year, at about 2 billion euros, compared with 1.1 billion euros from commercial mortgage-backed bonds, and 700 million euros from securities backed by auto loans, according to JPMorgan.
“The sizeable 45-65 basis-point CLO AAA spread pick-up to Dutch and U.K. prime RMBS suggests an advantage,” according to the report. A basis point is 0.01 percentage point.
New European CLOs this year have priced the AAA rated bonds at between 125 basis points to 155 basis points more than the euro interbank offered rate, according to data compiled by Bloomberg.
Blackstone Group LP’s GSO Capital Partners LP priced a 413.2-million-euro Herbert Park B.V. CLO on Aug. 9, the largest European deal this year.
CLOs pool high-yield loans and slice them into debt securities of varying risk and return, typically from AAA ratings down to B.
