The elephant in the room for any discussion about the revival of European loans in general and European CLOs in particular is the number of existing vehicles due to reach the end of their reinvestment periods this year. Such deals – most of which were inked in the boom years of 2005 to 2007 – will no longer be able to buy and sell assets; as such they become static. Roughly two-thirds of all CLOs in the market will become static this year, holding between €75 billion and €100 billion of assets between them. This at the same time as around €90 billion of European leveraged loans are due to mature between 2013 and 2015, according to Fitch.
The market has long fretted over the evaporation of these buyers. A similar theme is playing out in the US, where $66.55 billion of US CLOs reach the end of their reinvestment periods this year and $54 billion are due to go static in 2014, according to RBS. There is little concern about the impact of this, however, as the deals will likely be called and the assets placed in a new CLO vehicle to preserve value.
