Nov 29 - Fitch Ratings says in its new European leveraged
loan CLO tracker report that up to 40% of the CLO portfolio has been subject to
amend and extend activity in the past two years.
"While refinancing opportunities for highly leveraged borrowers remain scarce,
the maturity wall has been extended and smoothed," says Laurent Chane-Kon,
Director in Fitch's European Structured Finance team.
The cumulative default rate observed within CLO portfolio stands at 13.4% and is
still below expectations. Although the maturity wall has been smoothed, defaults
may still pick up when most loans are due for repayment between 2015 and 2017,
and if refinancing options continue to be limited and highly selective. In
addition, Fitch expects further writedowns for loan issuers that have previously
defaulted on their obligations. The initial debt restructurings, driven by the
limited willingness of lenders and CLO manager to accept writedowns, are not
sustainable and do not accurately reflect the value of the defaulted debts.
Nonetheless, net losses for European CLOs remain low. Excess spread has enabled
transaction to deleverage and reduced losses close to zero. The European CLO
sector has continued to perform thanks to efficient structures and lower than
expected defaults so far.
CLOs are now reaching the end of their reinvestment period. Reinvestment beyond
this period is typically only permitted if the senior notes have maintained
their initial rating and if coverage tests are in compliance. Most CLOs that
have passed their reinvestment period are deleveraging surprisingly quickly, up
to 20% after one year.
US booming issuance contrasts sharply with Europe, which almost come to a
standstill. The economic uncertainty in the eurozone, the lack of transparency
in the European leveraged loan market and the limited size of the high yield
bond market is not supporting a revival of the Europan CLO market.
More detail is available in the November 2012 European Leveraged Loan CLO
Tracker data file. The data has been expanded to include further extensive
historical performance data enabling a better understanding of transaction
Link to Fitch Ratings' Report: European Leveraged Loan CLO Tracker
performance over time.