Key takeaways

• Securitisation regulation is on a positive path but requires a more adaptive framework in order to encourage investment more broadly at a time when there are financing needs in Europe for the green transition, digitisation and defence spending.
• EU Institutions increasingly recognise that securitisation deepens European capital markets.
• European Commission proposals for reform of the Securitisation Regulation are expected in mid-June.
• A key change that the panel would like to see in EU regulation is a more proportionate approach towards due diligence and reporting requirements tailored to ensure that the investor has sufficient but not excessive information to understand the trade.
• In risk transfer trades, prudential requirements should consider the risk attached to the underlying asset class rather than providing blanket threshold rules.
• The ‘sole purpose’ test should be principles based rather than based on a specific threshold value.
• There could be an increase in green securitisations as financial institutions now hold portfolios of green loans.
• Recently, spreads have been compressing, creating an issuer-friendly environment due to U.S. investment in the EU market.

Transforming capital risk profiles through SRT mechanisms

The discussion focused on SRT as a securitisation technique that allows banks to reduce capital costs and enables investors to participate in lending risks. The session covered transaction structures (synthetic and cash), the shift from bilateral to club and syndicated deals and the increasing need for banks to use SRTs due to rising financing demands in Europe. Regulatory considerations, particularly around the use of repos and capital requirements, were also addressed.

Key takeaways

• SRT is a type of securitisation technique that provides banks with a reduction in their costs of capital and gives investors the opportunity to participate in the lending risk.
• Transactions may be structured synthetically or provide for the transfer of a loan portfolio.
• The underlying loan portfolio can be assessed on a names basis by assessing the credit risk of the underlying borrowers. Alternatively, the portfolio can be assessed on a statistical basis by projecting how the portfolio is likely to behave.
• Bilateral SRT deals are decreasing, and more frequently, a club of investors or even a syndicated deal is leading to wider investor participation.
• The use of repos in connection with SRT investments is currently being assessed by the PRA to better understand the capital requirements that should be associated with such repo positions.
• There is scope for more banks to come to the market and participate in SRTs, especially given the increasing need for financing in the European market, as banks are unable to hold all the assets on their balance sheet.

Fireside chat: New frontiers in CMBS – market transformation and opportunities

This session explored the current state and future prospects of the European Commercial Mortgage-Backed Securities (CMBS) market. Regulatory barriers were identified as the main constraint, though upcoming reforms may improve conditions. The session highlighted growing investor interest in logistics and living sectors, the potential for CMBS to fill funding gaps left by banks and the importance of diversification and education to unlock growth. The complexity and opacity of the market, as well as the small issuer and investor base, were noted as ongoing challenges.

Key takeaways

• Regulatory barriers remain the key constraint on CMBS issuance in Europe, though upcoming reforms may create a more enabling environment.
• There was growing issuance in 2024, and sentiment in the CMBS market is improving with signs of a gradual rebound.
• Investor interest in logistics and living sectors is increasing, reflecting broader structural trends such as e-commerce and remote work.
• CMBS is uniquely positioned to fill funding gaps left by banks, particularly in real estate sectors under transformation.
• A more diversified investor base and improved education on CMBS could help unlock future growth.

Keynote interview: Navigating the 2025 CLO landscape

The keynote provided an outlook on the 2025 credit and CLO markets, with a bullish view on European credit due to its stability and low default rates. The impact of tariffs, geopolitical risks and the need for Europe to invest in infrastructure and deregulate were discussed. The session also touched on the resilience of supply chains, the importance of diversification and the growing significance of Asian credit markets.

Key takeaways

• The European credit market has a stable structure, low default rates and presents portfolios with solid balance sheets. Provided that Europe increases spending by investing in infrastructure and helps growth by deregulating, the credit market is likely to remain strong.
• Notwithstanding tariffs, it is predicted that the U.S. economy will grow, albeit only by approximately 1.5% this year, provided that tariffs remain at around 15% on average for U.S. trade partners.
• Tariffs will have a detrimental effect, but supply chains have become more resilient since Covid, so the impact will be limited and manageable.
• For investors seeking to diversify, Asia is a promising market, as rising consumer wealth and high population numbers are likely to increase purchasing power and drive global growth.
• Geopolitics is the biggest risk at the moment, and tensions giving rise to international conflicts could have a detrimental impact on the economy. Similarly, if large AI investments do not pay off, the economy will suffer a shock.

CLO market dynamics: Global and transatlantic perspectives

As CLO markets demonstrate strong momentum across multiple regions, understanding the interplay between major markets is increasingly crucial. With structural innovations and new product types emerging globally, this session explored how different regions are influencing and learning from each other. With innovations in exchange-traded fund (ETF) structures and private credit CLOs emerging on both sides of the Atlantic, the panel discussed the following:

Key issues raised

• How is innovation affecting global CLO markets? What roles are ETF structures and private credit CLOs playing in different regions?
• What regional factors are driving divergent issuance patterns across global markets in 2025? How do variations in loan market depth, investor preferences and regulatory frameworks influence market development across Asia-Pacific, Europe and the United States?
• How is the proliferation of new managers impacting the CLO market? What are the drivers for and implications of the lack of CLO manager consolidation?
• With spread compression being a global phenomenon in 2024, how are managers in different regions approaching arbitrage opportunities? What regional variations exist in portfolio management strategies and how are global players leveraging cross-border opportunities?

The impact of liability management exercises on CLO portfolio management

This session examined the increasing use of liability management exercises (LMEs) in CLO portfolio management, particularly in distressed credit situations. The discussion covered the evolution of CLO documentation to allow greater flexibility, the differences between U.S. and European approaches and the challenges of executing LMEs. The future of LMEs in Europe was considered, with regulatory and cultural hurdles likely to shape their adoption.

Key takeaways

• LMEs have become a vital tool for CLO managers navigating distressed credits, offering alternatives to formal restructuring.
• Evolving CLO documentation now permits greater flexibility in participating in LMEs, including injecting new money into distressed companies – something that was historically restricted.
• While LMEs are more prevalent in the United States, their adoption in Europe remains limited due to regulatory constraints, market culture and lack of precedent.
• Executing LMEs is resource intensive, they require legal and analytical expertise and deal flow remains inconsistent.
• The effectiveness of LMEs is mixed, and success depends heavily on asset selection and structuring; poorly executed LMEs may incur losses.
• Europe is likely to see a gradual uptake in LMEs as the market evolves, but regulatory and cultural hurdles will continue to shape their trajectory.

Trader talk: Markets in motion

Recent CLO market activity has seen rapid repricing and record issuance, with European secondary market liquidity notably improving. The rise of ETFs, especially in the United States, is expanding the investor base and altering liquidity patterns, though it may introduce risks in stressed markets. Tariffs have mainly affected U.S. markets, while European CLOs remain stable. Investors are focusing on value higher in the capital stack, favouring discounted, predictable CLO liabilities, and regulatory differences continue to shape market dynamics and ETF growth.

Key takeaways

• The CLO market has experienced significant macro-driven repricing, with spreads moving rapidly in response to shifting economic conditions. The removal of recession risk has been a primary driver behind recent spread tightening and increased market activity.
• The past two years have seen record-breaking levels of CLO issuance and refinancing, reflecting robust demand and a favourable environment for new deals. This trend is expected to continue, with strong issuance anticipated in the coming months.
• The emergence and rapid growth of ETFs in both Europe and the United States are transforming the CLO market. ETFs are broadening the investor base and introducing new sources of liquidity, particularly at the AAA level. However, the shorter time horizons of ETF investors may introduce liquidity risks during periods of market stress, and there are concerns about sustainability if AAAs experience significant price drops.
• The European secondary CLO market has become notably more robust, with increased dealer participation and the ability to trade large blocks (e.g., £50 million AAAs) now commonplace. This enhanced liquidity is supporting greater market efficiency and investor confidence.
• Recent tariff developments have caused notable movement in underlying loans, particularly in the United States. CLO liabilities have responded in tandem, despite differences in the fundamental collateral between regions. The European market has been less affected by these tariff-driven shifts.
• Value opportunities within the CLO capital stack have shifted in recent weeks. With wider spreads, investors are increasingly interested in discounted CLO liabilities, particularly higher up the stack where returns are seen as more predictable and resilient.
• Regulatory divergence between the United States and Europe: Regulatory frameworks continue to shape market dynamics, with the United States adopting a more permissive approach to ETF structures compared to Europe. This has implications for the scale and influence of ETFs in each region and may affect future liquidity and risk concentration.
• CLOs remain resilient and attractive relative to other credit products, with the basis between markets being a key consideration for investors. The expectation is for continued high levels of issuance and a focus on finding value in the upper tranches of the capital stack. The evolving role of ETFs and ongoing regulatory developments will be important factors to monitor.

European CLO outlook: Investor roundtable

The roundtable discussed investor sentiment in the European CLO market, the availability of dry capital and the impact of regulatory changes. The session highlighted the bullish outlook on CLOs and ABS, the influence of U.S. investors in tightening spreads and the importance of regulatory dialogue. The impact of tariffs, M&A activity on loan availability and the need for regulatory changes to reduce the cost of capital were also discussed.

Key takeaways

• The investor panel discussed the availability of dry capital and that investors remain bullish on the CLO and ABS markets, predicting that tariffs will only have a limited impact.
• Regulatory change in Europe can impact the investor base significantly to lower the barrier for new entrants, although lowering the barrier significantly can also impact pricing to a degree that could reduce interest from institutional investors.
• Long-term availability of loans will be impacted by M&A activity in the coming years. Growing private credit funds are contributing to stability in the market as private credit becomes more sophisticated.
• CLOs represent a distinct class of investments because of the specific regulatory requirements for CLOs, which impact pricing and the investor base.
• The regulator’s announcement impacting the industry’s understanding of the sole purpose test shows that the industry needs to do a better job at communicating with regulators to ensure that it is not caught by surprise.
• Key regulatory changes are required, especially to reduce the cost of capital so that European investors can compete with U.S. investors.

Middle market CLOs: From niche to mainstream

Recent developments in middle market CLOs show that these vehicles, functionally similar to private credit CLOs, are gaining traction in both the United States and Europe. The first EU middle market CLO was a static deal with no reinvestment, and European portfolios tend to have higher regional diversity compared to the United States, where broader diversification is possible. Multicurrency risk is a growing consideration for European CLOs as portfolios increasingly include loans in different currencies. Effective communication with borrowers and sponsors is essential for managing credit risk, especially in uncertain macroeconomic conditions. While tariffs have caused some market reaction, their long-term impact is expected to be limited, with broader macroeconomic uncertainty now the primary concern.

Key takeaways

• Middle market and private credit CLOs are functionally the same product, both serving as financing vehicles for illiquid loans, in contrast to the liquidity-focused broadly syndicated loan (BSL) market.
• The first EU middle market CLO deal was recently completed as a static transaction with no reinvestment, using similar collateral rating criteria as BSL CLOs.
• European middle market CLO portfolios tend to have higher regional diversity, while U.S. portfolios benefit from broader diversification.
• There is optimism for further BSL deals in Europe and expectations for rapid market growth.
• Multicurrency risk is a significant consideration for European CLOs, as future portfolios are likely to include loans denominated in multiple currencies.
• Effective credit risk management relies on early and direct communication with borrowers and sponsors, allowing for flexible loan structuring and proactive resolution of potential issues.
• The impact of tariffs has been less severe than initially anticipated, with the market response seen as an overreaction; long-term effects are expected to be muted.
• The primary concern for the market moving forward is increased macroeconomic uncertainty, which may affect performance and origination.

On-stage interview: An LP’s CLO allocation strategy

This session featured insights from Galilei Investments, focusing on the evolving approach to CLO allocation in the context of recent market volatility. The discussion examined the impact of shifting institutional strategies, the interplay between private credit and CLOs and the outlook for recessionary risks and sectoral performance. The speaker also addressed concerns regarding the robustness of private credit structures and the potential for dislocation opportunities within the market.

Key takeaways

• Recent market volatility has significantly influenced institutional asset allocation, leading to a shift away from CLO exposure – not due to inherent market weakness, but as a reaction to broader market events.
• The rise of semi-liquid vehicles in private credit funds is affecting underlying loan prices and prompting investors to consider whether current conditions present dislocation opportunities.
• There is a prevailing sentiment that a recession is unlikely, and the long-term impact of tariffs is expected to be limited, though effects will vary by sector depending on reliance on foreign supply chains.
• Credit deterioration and unpredictable interest rate impacts have contributed to reduced CLO allocations, as investors seek to manage risk.
• The private credit lending space has experienced greater deterioration than the CLO market in recent years, raising questions about the resilience of private credit structures.
• Caution is warranted regarding the unwinding of private credit vehicles, as their ability to withstand market stress remains unproven.

Searching for returns: Liquidity outlook

This session focused on liquidity trends in the CLO market, highlighting the resilience of CLOs amid macroeconomic volatility. The discussion covered the divergence between primary and secondary market dynamics, the shift towards more liquid and transparent portfolios and the impact of standardisation and improved documentation. The importance of flexibility in trading strategies and the growing focus on longer-tenor warehouses were also emphasised.

Key takeaways

• CLOs have demonstrated resilience despite macroeconomic and geopolitical volatility, underpinned by their structural design to operate across cycles.
• Primary vs secondary market dynamics are diverging – secondary markets are more responsive to volatility, while primary markets adjust more slowly.
• There is a clear shift towards more liquid and transparent portfolios, particularly in response to credit migration and challenges in trading middle market loans.
• Standardisation efforts (e.g., STIP) and improvements in documentation transparency are helping to support investor confidence and adaptability in the CLO space.
• Managers are navigating shorter CLO cycles and favouring longer-tenor warehouses to provide flexibility in timing new issues.

In-depth 2025-140