Investec Weighs First CLO Since Crisis as Europe Market Recovers

Investec Plc, a bank and money manager in South Africa and the U.K., is considering its first collateralized loan obligation since the crisis as investor appetite returns for high-yielding structured notes.

“We have been observing the re-emergence of European CLOs in the past few weeks and are exploring ideas with a number of investors,” Richard Downer, the London-based head of financial markets at Investec Corporate & Institutional Banking, said in an e-mail. “Investec has been a programmatic issuer of CLOs in the past and is a very active lender in the European leveraged loan market.”

Money managers in Europe including Apollo Global Management and Pramerica Investment Management Ltd. are considering deals after Cairn Capital Ltd. issued a 300.5 million-euro CLO last month, the region’s first since 2011 and only the third since 2008. Investors shunned hard-to-value structured credit following the collapse of Lehman Brothers Holding Inc. meaning asset managers and banks couldn’t profit from issuing CLOs.

Investec’s last European CLO was the Gresham Capital CLO V BV deal, issued in June 2008 and increased later that year. It included a AAA rated portion paying a spread of 42 basis points more than benchmarks, according to data compiled by Bloomberg.

Spreads on top-rated portions of European CLOs fell to 150 basis points from 295 basis points at the start of 2012, according to data from Morgan Stanley. The AAA rated portion of Cairn’s CLO pays a spread of 140 basis points more than benchmarks, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and return. Banks can reduce funding costs by offloading debt on their balance sheet into CLO deals.

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