In looking at roughly 160 CLO deals, analysts at Merrill Lynch in their latest research report say that defaults remain minimal in European deals so far. The average default rate across our sample was 0.27%, rising to 1.62% when limiting the study to transactions that do not have defaulted assets in the first place. They found only two deals in the entire sample with default rates in excess of 5% and only six transactions with default rates above 2%. 

Further, the analysts expect recoveries in the sub asset classes of second lien and mezz loans to widely underperform both the broad loan market and historical measures. They say there is a strong likelihood they will recover the same type of amounts seen in senior unsecured. Upon updating the concentrations in such assets, the analysts do not see any noticeable change from last December in the size of the second lien and mezzanine buckets. Second lien exposure was 5.232% on average and mezzanine buckets were 3.67%.