Avoca to price €300 million CLO; new deals increase European CLO exposure to Caa-rated assets

By Cristal Cody

Tupelo, Miss., Sept. 3 - Activity in the U.S. collateralized loan obligation market was slow on Tuesday following Monday's Labor Day holiday, while the European deal pipeline picked up, according to informed sources.

Avoca Capital Holdings plans to return to the European CLO market for the first time since 2008 with a €300 million offering, according to an informed source.

European CLOs backed by broadly syndicated loans performed well during the 2008 financial crisis, Moody's Investors Service said in a report.

"Particularly noteworthy is how well the European CLO market performed during the recent financial crisis, when CLOs did not suffer the widespread defaults typical of corporate mortgage-backed securities," Moody's said.

"Notably, none of the European CLOs we rate incurred principal losses. To date, no event of default has occurred in European CLOs. Approximately 80% of CLO notes we initially rated Aaa maintained their Aaa ratings."

Over the summer, European CLOs have added more exposure to Caa-rated assets, according to Moody's.

"The average exposure to Caa assets in European CLOs jumped 2.05% to 13.39% in June, primarily because Caa assets now constitute a significant percentage of two transactions," Moody's said in a report released in the previous week.

"One transaction has only one asset remaining, which was reclassified as a Caa-rated performing asset from defaulted in June," according to the report. "The other has amortized heavily and the senior notes have paid down in full. Excluding these two CLOs, Caa assets in June constituted on average 11.4% of European CLO portfolios, a 0.01% decrease in Caa holdings since May."

Avoca plans €300 million CLO

Avoca Capital is expected to price the €300 million European CLO via Credit Suisse Securities (Europe) Ltd., according to an informed source.

The Dublin-based European credit investment manager last priced a European CLO in 2008 when it brought the €300 million Avoca CLO IX Ltd. transaction.

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