CQS preps €362.2 million Grosvenor CLO; European CLOs hold 'higher share' of junk bonds

By Cristal Cody

Tupelo, Miss., Oct. 24 - Primary activity in the European collateralized loan obligation market is expected to pick up headed into November, according to informed sources.

CQS Management, Ltd. plans to price a €362.2 million European CLO at the end of the month, the firm's first deal since 2007, according to a source.

Other European CLOs in the pipeline include NIBC Bank NV's €300 million North Westerly CLO IV Regulation S and Rule 144A deal via RBS Securities Inc. and Intermediate Capital Group plc's St. Paul's CLO III Ltd. transaction via J.P. Morgan Securities LLC.

"There has been a comeback, albeit still relatively mild, of European new-issue CLOs this year," David Yan, an analyst with Credit Suisse Securities (USA) LLC, said in a note on Thursday. "European CLOs tend to have a higher share of high-yield bonds - probably around 5% more than U.S. CLOs, more unrated collateral, and relatively 'lumpier' collateral across various jurisdictions with different legal systems."

About €4.5 billion of European CLOs have been issued year to date, compared to a peak of about €38 billion in 2007, he said.

In the U.S. CLO market, more than $62 billion of new transactions have priced this year.

European CLOs

Standard & Poor's said in a news release on Thursday that its third-quarter European CLO performance index report showed that business equipment and services industry borrowers represent the largest industries in which European CLOs are invested for both 1.0 and 2.0 CLOs, the agency said.

CLOs priced before the 2008 financial crisis are known as CLO 1.0 deals and those priced after are called 2.0 transactions.

The collateral portfolios for European CLO 2.0 transactions hold a larger percentage of assets invested in common industries such as health care, cable and satellite television and telecommunications, S&P said.

"In addition, European CLOs are predominantly invested in loans to borrowers operating in the U.K., Germany, and France," S&P said. "Unsurprisingly, the major difference between the geographic distribution of CLO 2.0 and CLO 1.0 transactions is that more CLO 2.0 portfolios are invested in German borrowers, and less with Spanish borrowers."

In addition, assets rated above B are more prominent in pre-crisis CLOs, the agency said. The pre-crisis deals also contain more lower-rated assets in the CCC and D categories, S&P said.

CQS preps €362.2 million CLO

CQS' €362.2 million Grosvenor Place 2013-1 deal is set to include €202.13 million of class A-1 floating-rate notes (expected Aaa//AAA); €46.38 million of class A-2 floating-rate notes (expected Aa2//AA); €21 million of class B floating-rate notes (expected A2//A); €18.38 million of class C floating-rate notes (expected Baa2//BBB); €22.75 million of class D floating-rate notes (expected Ba2//BB); €11.38 million of class E floating-rate notes (expected B2//B-) and €40.18 million of subordinated notes in the equity tranche.

Deutsche Bank AG, London Branch will arrange the transaction.

CQS, a global management asset firm based in London, will manage the CLO.

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