Larger borrowers utilised the leveraged loan market in Europe during the period of low interest rates prior to 2022. As a result, collateralised loan obligation (CLO) exposure to single names and the idiosyncratic risk associated with a single borrower has become evident in the recent case of Altice, a telecommunications provider. The company made extensive use of the leveraged loan market as part of its almost EUR25 billion of debt outstanding. However, Altice is not the only large borrower in the CLO market. In this report, KBRA explores large exposures to various corporates in the CLO market.
Key Takeaways
- Large borrowers have become a significant part of the private credit, leveraged loan, and CLO markets as these European markets have grown. The 20 largest borrowing entities account for EUR32.9 billion of leveraged loans.
- CLO exposure to the 20 largest entities ranges from 6.6% to 24.5% of transaction holdings. The largest exposure within a single CLO totals EUR123.4 million. However, CLO structures generally limit the exposure of any single obligor to 3%.
- CLO managers in aggregate can also have elevated exposure to large borrowers with some managers holding up to EUR2.1 billion of exposure to the 20 largest borrowers.
- High interest rates and margin compression challenge leveraged loan borrowers. The impact of both can meaningfully impact a borrower's free cash flow after debt service. However, most borrowers with an upcoming maturity have moderate KBRA weighted average rating factors (K-WARF), ranging from 939 to 2,310 with only two exceeding this range-Altice France and Garfunkelux Holdco 3.
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Related Publications
- European CLO Manager Style Comparisons: April 2024 Update
- European Securitisation: Positive Trend Continues
- Navigating European CLO Tail Risk: Mind the Amortisation Gap
- European Corporates: Muted Impact of Geopolitical Tensions on Energy, so Far
- Private Credit: Potential for European MM and Direct Lending CLOs
- European Corporates: Margins Temper and Production Slows
About KBRA
KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA's ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.
Doc ID: 1004501
View source version on businesswire.com: https://www.businesswire.com/news/home/20240529707949/en/
Contacts:
Gordon Kerr, Managing Director, Head of European Research
+44 20 8148 1020
gordon.kerr@kbra.com
Gabriele Gramazio, Senior Director
+44 20 8148 1001
gabriele.gramazio@kbra.com
HyunKyeong Kim, Associate
+1 646-731-2459
hyunkyeong.kim@kbra.com
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Adam Tempkin, Director of Communications
+1 646-731-1347
adam.tempkin@kbra.com
Business Development
Mauricio Noé, Co-Head of Europe
+44 20 8148 1010
mauricio.noe@kbra.com
Miten Amin, Managing Director
+44 20 8148 1002
miten.amin@kbra.com
