European CLO managers are exploring potential ‘hybrid’ issuance structures that would blend broadly syndicated loans with private credit assets, according to 9fin sources, in what some see as an attempt to create a new type of European CLO product as the lines between liquid and private markets continue to blur.
Small BSL buckets are firmly embedded into the handful of European private credit CLOs that have so far been issued, but new structures envisage BSL pools as the starting point with a migration over to private credit loans.
The concept remains at its early stages, with concerns about how exactly the economics will work, but managers have begun testing investor appetite and engaging with rating agencies around potential structures, sources said.
The structure could help private credit CLO issuers better manage their liquidity as holding syndicated loans will not drag on returns as much as holding cash through money market funds. But there’s a delicate balancing act because a private credit CLO structure holding a sizeable portion of TLBs at the outset, as is being proposed, could drag on returns nonetheless.
Hybrid CLOs is a phrasing that has been used before — in the early 2000s it would have meant...
