KBRA Releases Research – European CLOs: Too Big to Hold?

KBRA releases a report exploring large exposures to various corporates in the collateralised loan obligation (CLO) market. Larger borrowers utilised the leveraged loan market in Europe during the period of low interest rates prior to 2022. As a result, CLO exposure to single names and the idiosyncratic risk associated with a single borrower has become evident in the recent case of Altice, a telecommunications provider. The company made extensive use of the leveraged loan market as part of its almost EUR25 billion of debt outstanding. However, Altice is not the only large borrower in the CLO market.

Key Takeaways

Large borrowers have become a significant part of the private credit, leveraged loan, and CLO markets as these European markets have grown. The 20 largest borrowing entities account for EUR32.9 billion of leveraged loans.
CLO exposure to the 20 largest entities ranges from 6.6% to 24.5% of transaction holdings. The largest exposure within a single CLO totals EUR123.4 million. However, CLO structures generally limit the exposure of any single obligor to 3%.
CLO managers in aggregate can also have elevated exposure to large borrowers with some managers holding up to EUR2.1 billion of exposure to the 20 largest borrowers.
High interest rates and margin compression challenge leveraged loan borrowers. The impact of both can meaningfully impact a borrower’s free cash flow after debt service. However, most borrowers with an upcoming maturity have moderate KBRA weighted average rating factors (K-WARF), ranging from 939 to 2,310 with only two exceeding this range—Altice France and Garfunkelux Holdco 3.

Click here to view the report.

KBRA Releases Research – European CLOs: Too Big to Hold?

Key Takeaways

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