Europe’s CLO Managers Snap Up Leveraged Loans as Prices Drop

(Bloomberg) -- European CLO managers are snapping up leveraged loans in the secondary market after jitters about credit risk triggered by Russia's invasion of Ukraine drove prices down to their lowest levels since late 2020.

The average price of existing loans on the S&P Leveraged Loan Index fell 1.4% in February to 97.4 cents on the euro, the sharpest monthly decline since the start of the pandemic in March 2020. 

Even before war broke out, prices had been falling amid growing concern about prospects for economic growth as central banks turned more hawkish in the face of surging inflation. With no new loan transactions being launched, managers of collateralized loan obligations, which bundle up speculative-grade corporate debt into bonds, are sourcing attractively-priced credits from the secondary market. 

“Over time, we view this as an opportunity to buy names we like at better prices,” said Gretchen Bergstresser, global head of performing credit at CVC Credit Partners in a phone interview. “If the situation resolves itself and doesn't escalate into something much more severe, we're optimistic that the markets will start functioning again.”

As many as 80 new CLO deals are in the works, after securing financing to build portfolios, according to Christoph Zens, head of European CLO business at Tikehau Capital SCA. That will serve to continue to spur demand for loans, he said.

“With a frozen market, portfolio management has become very critical right now,” said Carmen Alonso, U.K. and Iberia head at Tikehau. 

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