The one area of Europe’s structured credit markets where it’s worth adding resources is collateralized loan obligations, if Barclays Plc is anything to go by.
As the British lender cut senior staff in its European asset-backed securities business last week, it added two CLO traders in London, according to four people familiar with the matter, who asked not to be identified because the moves aren’t public. Matt Michhiana and Travis Hayes, who previously held other roles at Barclays, have joined the CLO business headed by Michael Clarke, the people said.
Jon Laycock, a London-based spokesman, declined to comment on the changes.
Investors are flocking to Europe’s 63 billion-euro ($69 billion) CLO market as European Central Bank stimulus measures suppress premiums in the rest of the region’s securitization market. ECB President Mario Draghi’s exclusion of the securities from his purchase program is boosting their appeal, setting issuance on course for the busiest year since 2008.
“The CLO market is booming and becoming increasingly attractive,” said Ruben Van Leeuwen, an ABS analyst at Rabobank in Utrecht, the Netherlands. “With more of the ABS market being exposed to lower and lower spreads due to the extra demand created by the ECB, the higher margins on offer for CLOs and decent supply of new deals is fueling investor demand.”
Sales of European CLOs total 9.5 billion euros this year, according to data compiled by Bloomberg. That’s more than the 6.9 billion euros sold in the same period of 2014 and puts the market on course for the highest full-year sales since 20.5 billion euros was issued in 2008, according to JPMorgan Chase & Co.
Barclays was the third-largest underwriter of CLOs in the first half of the year, after Citigroup Inc. and Bank of America Corp. The lender arranged 835 million euros of deals in the period, Bloomberg data show.
The bank’s asset-backed debt business was stripped last week. Chris Carnell, head of European ABS sales, Stuart Calnan, its head of European ABS trading, and Christian Aufsatz, head of European ABS research, were among those let go, three people familiar with the matter said at the time.
Investors demand an average 85 basis-point premium over benchmark rates to hold senior-ranking notes of European CLOs, according to JPMorgan. That compares with an average spread of 33 basis points for top portions of Dutch residential mortgage-backed securities, the data show.
“If you’re looking at securitized products, CLOs are probably the place to be,” said Gareth Davies, JPMorgan’s head of European asset-backed securities research in London. “There is new issuance, which means bonds are available, and spreads are much wider than for traditional ABS.”