European CDO Market Sees Significant Growth in 2006

Strategic Insights -

The European CDO market is experiencing significant growth, with year-to-date issuance volumes up by more than 100% compared to the same period last year. Ten European CDOs were issued in February alone, bringing the 2006 total to 6.6 billion euros ($7.87 billion). Analysts at Deutsche Bank attribute this growth to the robust leveraged loan CLO issuance, which reflects the high volume of loans seen in the underlying European loan market.

Key Takeaways:

  • European CDO year-to-date issuance volumes are up by more than 100% compared to the same period last year.
  • Ten European CDOs were issued in February, bringing the 2006 total to 6.6 billion euros ($7.87 billion).
  • Analysts at Deutsche Bank expect the market to remain robust in the coming months, driven by the demand for leveraged loan CDOs.
  • February saw the debut of several leveraged loan CDOs, including Cheyne Capital's 1 billion euros ($1.1 billion) credit opportunity fund-like CDO, the largest ever leveraged loan securitization in Europe.
  • Henderson Global Investors priced its 300 million euros ($358 million) MAGI I transaction, and IKB brought its 400 million euros ($477 million) BACCHS 2006-1 leveraged loan CDO to market.
  • SME CLO issuance has remained light following the flood of product seen at the end of 2005, according to Deutsche Bank.
  • European structured product cash CDOs continue to show strong credit performance, with asset upgrades ranging between 15% and 32% of the portfolios over the last 12 months.
  • Portfolio rating factors remain stable to improving, but analysts at Deutsche Bank expect name-specific credit weakness to become more pronounced in the coming months.

Statistics:

  • European CDO year-to-date issuance volumes: 6.6 billion euros ($7.87 billion)
  • Total European loan market in 2005: 125 billion euros ($149 billion)
  • January 2006 primary loan volumes: 20 billion euros ($23.8 billion)
  • Asset upgrades in European structured product cash CDOs over the last 12 months: 15% to 32%
  • Downgrades in European structured product cash CDOs over the last 12 months: 1.5% to 2.5%
  • Number of tranches rated by Fitch: 208 (31 European and 177 U.S.)
  • Total amount exposed to Dana Corp. in CDOs: over 1.63 billion euros

Sources:

  • "Deutsche Bank Research Report" by analysts at Deutsche Bank
  • "Asset Securitization Report" by SourceMedia, Inc.
  • Fitch Ratings report on Dana Corp. filing for Chapter 11 protection