The rebirth of the Collateralized Loan Obligations - A case study of the dynamics in the European Collateralized Loan Obligation

Abstract

Collateralized Loan Obligations (CLOs) have gone through being a main source of leveraged finance funding in the beginning of the 21st century to completely diminish in 2009. Now together with a changing market, the CLO market is on the rise in Europe. The aim of this study is to investigate the main issues in the European CLO market and how the product will evolve in the future addressing those barriers. Moreover, this study will be one of few examining the driving factors in the European CLO market. Research in this field argue that a modified European CLO model is in progress in the market with already three vehicles priced this year. This paper concludes that the trend in these pricings seems to be featured by shorter reinvestment periods and shorter non-call periods, in favour of the equity tranche investors. In addition, the demand in the European leveraged finance market shows indications of reaching a wider investor base combining a rising CLO market with refinancing through the high-yield bond market and amend-and-extend activity.