European CLOs Prepare for Post-Pandemic Risks With More Flexible Terms
- A majority of the region’s deals last year added new language
- Changes add ability to inject new money in debt restructurings
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Collateralized loan obligation managers in Europe are preparing for the post-pandemic world of rising credit risk by adding more flexibility to their traditionally strict structures.
CLOs -- which package speculative debt into bonds -- have been including options to participate in restructurings and remain involved in financings even if they go south. And while managers don’t expect a sudden deterioration of junk-rated loans and bonds anytime soon, with defaults in Europe still historically low, they want to be prepared in case things sour.