UK: CLO Fear Factor To Lift This Year Say ABS Heads
Last Updated: 26 June 2014

Bankers and investors at IMN's Global ABS conference, which returned to its "spiritual home" in Barcelona on Tuesday, are hopeful that the collateralised loan obligation product – one letter removed from the infamous CDO – will overcome its "fear factor" this year and inspire unprecedented levels of demand.

Investors should expect a wave of new entrants to splash into the market for European CLPOs this year as the industry works its way around the US's Volcker Rule, which put a stranglehold on new issuance in the first quarter, and new risk retention requirements in Europe.

"CLOs are cheaper than even sovereign paper and it's a very attractive instrument that will become more attractive over time," said Huub Mourits, global managing director SFS at TMF Group Netherlands, in a panel at Global ABS.

The ongoing global search for yield in a historically low rate environment has investors flocking to the CLOs, which are paying out relatively more than other types of bonds.

This demand could help CLOs rise above the tarnished reputation of CDOs which has instilled fear among investors.

"There is still a fear factor for CLOs though," said Mourits. "It's a three letter [security] and ends with an O. It's still close in name to the CDO."

While some European investors have recently begun looking towards the US, where CLOs are seen as offering better value, US CLO managers have also begun structuring their deals to comply with European risk retention requirements in the hope of broadening their appeal.

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