State Street Steps Up Buying of Top-Rated CLO Debt in Europe

State Street Corporation has stepped into the European CLO market recently bolstering demand for triple-A rated paper.

The firm, which buys the top-rated tranches in loan format, has already invested in a number of transactions in Europe as part of plans to increase its investment activity in the CLO space.

In a statement to Bloomberg news, the firm said that it is offering financing of CLOs in loan form as a way to be a financial resource for clients of its trustee, administration and custody businesses.

“We have been a first mover in this market in Europe and we look forward to partnering with financial institutions already in this space in the U.S. markets in the coming months,” the firm said. “We anticipate this will be a growing activity as we work to meet our clients’ needs.”

The hunt for yield and rising demand for floating-rate instruments has driven appetite for CLO triple-A assets in recent months, helping push spreads to levels last seen three years ago. With this heightened demand, there’s a growing desire for triple-As in loan format.

Bank of America Corp. has already bought this type of asset in the U.S. market, and is eyeing the European market for opportunities, according to people familiar with the matter. The loan format may offer a bank better capital treatment than it would get for holding a security.

Read more: Bank of America Boosts CLO Purchases as Reflation Bets Heat Up

A spokesperson for Bank of America declined to comment.

Triple-Play

  • Sound Point is the latest manager to price a deal with triple-A loans, including a tranche in its new issue European CLO, Sound Point Euro CLO V, that priced yesterday via arranger Jefferies
  • Last month Permira Debt Managers included a triple-A loan tranche in its Providus CLO V, also arranged via Jefferies
  • Spire Partners this week included a tranche of triple-A loans in a reset of Aurium CLO V, with BofA arranging that transaction

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.