European CLOs Reborn

Abstract

With the reopening of the European collateralized loan obligation (CLO) market this year, there has been a surge in primary issuance. This article examines the new features that have been incorporated in “CLO 2.0” transactions, such as refinancing and re-pricing options, and the inclusion of provisions designed to set parameters for any restructuring and maturity extensions of underlying assets. In addition, it considers other changes, for example, to the size of manager fees and the duration of reinvestment and non-call periods compared with 1.0 transactions. Finally, it outlines developments in warehouse financing, hedging issues, and the impact that regulations—in particular, “skin in the game” requirements—are having on European CLOs.