European CLOs offer good value relative to US deals, says BofA Merrill

Senior paper from European CLOs now looks very attractive from a risk-adjusted spread perspective, according to Bank of America Merrill Lynch's latest CLO Weekly report, published this week. Following a rally in US CLOs, euro double A paper now trades like high quality US triple Bs, say the bank's analysts, at spreads of 700-800 basis points on a discount margin basis. European single A CLOs are around 1100-1200bp, in line with US double Bs. European triple As (in the low 300s on a DM basis) also offer good relative value, but are hard to source, according to the report.

Only the brave and those bullish on European loan prices should venture further down the euro-CLO capital structure, however. The report says that only 10% of European triple B pieces are "covered" in terms of the market value of the underlying collateral.