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Risk retention financing and warehouse first loss pieces are becoming increasingly attractive trades for European CLO equity buyers as they face growing competition from US buyers and junior debt investors creeping down the capital stack.
Surging interest from US buyers and junior debt investors looking further down the capital structure is forcing some traditional buyers of European CLO equity to look at investment opportunities at the low end of the CLO credit spectrum.
One opportunity that many firms are eyeing, and which one syndicate banker said was now the crucial piece of the CLO structuring puzzle, was financing the first loss risk on a CLO warehouse while the manager is ramping the deal with assets. Investors are exposed to a portion of the first losses on the portfolio while it is being built, prior to being structured in a CLO.
The other trade that buyers are considering more is becoming holders of risk retention pieces of new CLOs.
As a standalone investment, one CLO equity buyer said investors would be expecting...