Half of all European CLO managers are zombies, says Fitch

Fitch estimates that 50% of European CLO managers are “zombies”, taking management fees without devoting the care and resources to their deals that they did before the crisis. US managers in particular, it says, are mostly maintaining only a minimum presence in Europe. Fitch says that nearly one-third of the 64 current European CLO managers are looking to wind down or sell their CLO management businesses.

In a new report, “European CLO management industry update”, the rating agency calculates that 35% of a typical manager’s deals are failing overcollateralisation tests and not paying subordinated fees. This raises Fitch’s estimated breakeven rate from two or three deals under management when all deals were performing in 2007 to four or more today. This, it suggests, is the number of deals required to be able to afford the resources needed to adequately manage CLOs.

The report predicts that consolidation among managers, which has not yet happened in Europe to the same extent as in the US, will increase. It adds that there has been one recent example of consolidation, with Pramerica (Prudential Financial) taking over as subadvisor on the five CLOs managed by Pemba.