Category: CLOs
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S&P has put forward three possible options for filling the funding gap in the European leveraged finance market: the corporate high yield bond market, loans from retail investors and new institutional investors.
The agency believes that the corporate high yield bond market will form the main part of the solution in the near term. In the future, retail schemes could account for a greater volume of leveraged loans, it says.
Funds have already been set up to capitalise on demand from retail investors to gain exposure to speculative-grade credit. Overall, S&P anticipates that there will be a broader mix of investors in leveraged loans, including new institutional investors lending via subordinate loans.
"In the long run, we believe that the leveraged loan market will revive and provide a portion of funding, but that it is likely to look much different than it does now," the agency notes. "Specifically, we foresee that investment through CLOs will consolidate significantly and that there will be a broader range of investors in the high yield asset class, including credit funds, insurance companies and pension funds."
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