Reed Smith Client Alerts

Key takeaways and industry perspective

  • Growth of asset class expected to accelerate with strong year for new issuance, refinancing and resets anticipated as certain bottlenecks to CLO creation are cleared. 2024 set to challenge 2021 for record issuances as spreads tighten and market catches up with more stable fundamental outlook. 
  • CLO documentation evolving to address ESG considerations and criteria, but more needs to be done to help ESG standardisation and transparency across market. 
  • Performance of underlying CLO portfolios is holding up and CLO arbitrage is strong. Equity returns are outperforming historical averages and becoming more attractive for third-party investors.
  • New and emerging data and analytics technologies on CLO scene are aiming to accelerate and improve productivity.
  • In an ever-changing macro environment, it is crucial that CLO investors and managers adapt to future-proof CLO documentation.

Reed Smith was a proud sponsor of the IMN’s 11th annual Euro CLO Forum in London on 20 March 2024. Below is a summary of the events key takeaways and industry perspectives from the conference.

Opportunity in the European CLO market and lessons from U.S. CLO investing

2024 is expected to be a strong year for new issuance, refinancing and resets in Europe as certain bottlenecks to CLO creation are cleared.

The attractiveness of the current opportunities in CLOs cannot be understated. The U.S. market has seen a fast start to 2024, with issuances to the value of US$20 billion closing in February alone. CLO refis and resets have also experienced a notable uptick as spreads tighten and the market catches up with a more stable fundamental outlook. 2024 is set to challenge 2021 for record issuances.

A word of caution, however: with 2023 being characterized by high interest rates, the cash coverage reserves of underlying borrows has depleted. CLO managers must play a key role in identifying this and transitioning portfolios away from bad credits.