Europe sees first CLO senior OC breach, says Morgan Stanley

In its latest CDO market update report, Morgan Stanley says that a European CLO has for the first time breached a senior overcollateralisation test. The report does not name the deal, but says that there are now 17 US deals in this situation - up from only seven a month ago.

European deals continue to have significantly higher cushions to their OC tests than US deals. According to the report, the median US deal from recent vintages had a 7.9% cushion to its senior OC test, whereas the median Euroepan deal had a 11.6% cushion. Older deals have significantly less cushion before they breach their tests. For 2003 deals, the median cushion was 5.7% for US deals and 6.3% for European CLOs.