Bloomberg News

Cairn Capital Sells First European CLO Transaction Since 2011

February 20, 2013

Cairn Capital Ltd., a London-based credit manager, has sold the first European collateralized loan obligation since 2011 as investor demand for yield boosts appetite for the notes.

The 300.5 million-euro ($402 million) Cairn CLO III BV loan fund was arranged by Credit Suisse Group AG and includes a 181.5 million-euro top-rated portion paying a spread of 140 basis points more than benchmarks, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

“Investors’ ongoing search for yield allowed Cairn to bring its deal at tighter pricing than the market had originally expected,” said Mark Hale, chief investment officer at London- based Prytania Investment Advisors LLP. Cairn’s CLO was a “modest sign of renaissance”, Hale said.

Hale said he didn’t expect a surge of new issuance as has been seen in the U.S., where issuance more than quadrupled to $55.4 billion in 2012 and is forecast by Wells Fargo & Co. to reach $80 billion this year.

The Class B portion pays a spread of 235 basis points, the Class C 325 basis points and the Class D 425 basis points, according to data compiled by Bloomberg.

A spokesman for London-based Cairn Capital, who asked not be identified citing company policy, declined to comment on the financing.

Two CLOs have been sold in Europe since 2008, the last in June 2011, as investors shunned hard-to-value assets in the worst credit crisis since the 1930s. Pramerica Investment Management Ltd. is also planning to raise a 300 million-euro CLO, people with the knowledge of the deal said.

The average yield on AAA rated bonds backed by bundles of loans made to the neediest European companies narrowed from 190 basis points three months ago to 150 basis points more than benchmarks, according to a Feb. 7 Morgan Stanley report.

CLOs pool high-yield, high-risk loans and slice them into securities of varying risk and return.

To contact the reporters on this story: Patricia Kuo in London at pkuo2@bloomberg.net; Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net


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