Babson in deal pipeline; European market focuses on distressed loans, impact to CLOs

By Cristal Cody

Tupelo, Miss., March 4 - As the collateralized loan obligation market waits for new European deals to price from Babson Capital Europe Ltd. and Intermediate Capital Group plc, participants are taking notice of the exposure of CLOs to distressed loans after the drop in Vivarte SAS' loan prices, sources said.

Coming up in the primary market, Babson Capital Europe is expected to offer a €414 million CLO, while Intermediate Capital Group plans a €360 million deal, according to informed sources.

The junior debt and equity tranches of European CLOs are more susceptible to "downward pressure on secondary market trading levels," according to a report from Morgan Stanley & Co. LLC analysts Vishwanath Tirupattur and Mia Qian. "A drop in the market value of the collateral now quickly translates into price declines in CLO tranche prices."

Vivarte, a French fashion designer and retailer, announced on Feb. 11 that it is postponing payments on €2.8 billion of debt.

"Unlike in U.S. CLOs, exposure to distressed loans in European CLOs is not well diversified among deals," the note said. "In our list of distressed loan names, four names are commonly held by more than 30 existing European CLOs."

Vivarte tops the list of the top five loans in European CLO portfolios showing distress with about €800.6 million of exposure, according to the Morgan Stanley report.

Other European loan prices also have dropped more than 5 points over the past month, the analysts said.

The other top recently distressed loans in European CLO portfolios are from Van Gansewinkel Groep BV, which has €424.4 million of total exposure; PHS Group plc, which has exposure of €207.5 million; Autobar Group, which has €124.2 million of exposure; and Stahl Europe BV, which has €28.7 million of exposure, according to Morgan Stanley.

Babson preps €414 million CLO

Babson Capital Europe plans to price the €414 million CLO via BofA Merrill Lynch, according to an informed source.

Babson Capital Europe, a subsidiary of U.S.-based Babson Capital Management LLC, will manage the CLO.

The sub-investment grade credit fund management firm is based in London.

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