Contents

CLOs

Aurium and Dryden excel in EU CLO equity BWIC landscape

Poh-Heng Tan from CLO Research shares insights on strong cover bids and diverging IRRs highlighting CLO equity market dynamics amid leverage and post-RP trends

Source: Intex, CLO Research, SCI

ACLO 9X SUB received a strong cover bid of 74.27, according to SCI’s BWIC data. With an annual distribution of 24.7% since inception, this translated into a robust 22.3% IRR for primary equity investors, assuming an issue price of 95. For secondary investors, however, such a price would likely imply a low- to mid-teens IRR under generous assumptions—suggesting the level is rich, particularly given the deal’s high leverage.

The deal’s estimated initial arbitrage stood at around 225 bps (portfolio discounted spread less cost of funding based on DM). Its strong distribution was partly driven by an outsized first payment of 18.2 points and a highly leveraged structure—nearing 14x collateral-to-equity notional—well above the sub-12x average for H1 2022 deals.

BBAME 3X SUB, another 2022 vintage tranche, received a similar cover bid in the 70s, though its primary equity IRR was lower at 13.3%, due to more modest annual distributions.

CORDA 16X M1 and ANCHE 4X SUB have both exited their reinvestment periods. CORDA 16X M1’s cover bid was roughly clean equity NAV plus one payment; ANCHE 4X SUB’s was about two payments above clean NAV. With IRRs between 6.1% and 7.2%, both rank in the fourth quartile relative to similarly aged tranches traded since July 2024.

Another deal that has exited its reinvestment period, MDPKE 14X SUB (2019 vintage), also received a cover bid in the 50s—less than one distribution above its clean equity NAV of around 50—yet delivered a primary equity IRR well above that of its peers. Distributions remain strong, with the latest at approximately 5.6 points. The manager’s post-RP prepayment track record makes the tranche appealing to secondary buyers.

ACLO 7X SUB, another Spire-managed tranche, also delivered strong results. It received a cover bid of 68.56 and achieved a 21.5% annual distribution, translating to an 18.0% IRR for primary investors.

DRYD 2017-59X SUB was bid at 28.2, reflecting a low clean equity NAV of around 24. The deal exited reinvestment roughly 2.5 years ago, and its most recent equity payment dropped to 3.5 points. Despite the modest exit, its IRR for primary investors reached 15.6%, supported by seven years of distributions averaging 19.1%.

Asset-Backed Finance

SCI In Conversation Podcast: Christophe Fritsch, AXA IM Alts

We discuss the hottest topics in securitisation today...

In this episode of SCI In Conversation, Christophe Fritsch, global head of alternative credit at AXA IM Alts, speaks with associate editor Marta Canini about the firm’s new diversified evergreen private credit strategy. Fritsch also discusses rising institutional and retail demand, the impact of ELTIF 2.0, sourcing in a crowded market, and why 2025 could be a defining year for ABF. We recorded this episode in May, and while markets have continued to shift since then, the themes discussed remain incredibly relevant.

This episode is available here, and on all major podcast platforms, including Apple Podcasts and Spotify. Just search for SCI In Conversation.

Marta Canini

Asset-Backed Finance

DeFi securitisation breakthrough?

Figure Markets launches first blockchain-based RWA credit facility

Figure Markets has launched a US$15m senior lending facility, initially backed by home equity lines of credit (HELOCs) originated by Figure Lending, marking the first real-world assets (RWAs) financing on a decentralised finance (DeFi) marketplace. The facility enables institutional and retail investors to lend on equal terms in a fully decentralised system.

“In a nutshell, the innovative aspect of this transaction is that it opens up to the retail investor community lending opportunities that were previously available only to large warehouse lenders. In addition, the use of a blockchain-native, interest-earning form of funds is another point of innovation,” says Christos Polyzois, strategic capital markets advisor at Figure.

Lenders using Figure Markets’ ‘Democratized Prime’ platform provide capital to borrowers, who post digitally represented RWAs (initially performing HELOCs) as collateral on the Provenance Blockchain. The system eliminates the complexity and cost of collateral arrangements by digitising ownership rights and verifying asset quality through immutable on-chain records.

“What used to cost hundreds of thousands of dollars in legal and operational overhead is now accessible with a click,” adds Polyzois. “By anchoring every data point and ownership record on-chain, we replace trust with truth.”

The facility’s initial pool includes HELOCs with strong credit profiles secured against single-family homes, with average combined loan-to-value (LTV) ratios of around 65% and average balances of US$90,000. All loans in the pool are performing and if any become delinquent, the borrower must replace or repay the corresponding amount.

While the current pool isn’t being securitised, Figure Markets regularly securitises similar blockchain-based assets, and future pools may qualify.

“We use the same blockchain tech for securitisations as in Demo Prime transactions, with major rating agencies comfortable with our approach,” says Polyzois. “Securities are still issued traditionally due to regulatory uncertainty, but could become fully blockchain-native as rules evolve.”

A unique feature of Figure’s platform is its hourly Dutch auction mechanism. Lenders set their desired yield and the platform aggregates bids until borrower demand is met. The highest accepted rate becomes the clearing rate, applying to all lenders in that period. This approach mirrors US Treasury auctions, with transparency and real-time pricing.

“Instead of governments, you’re lending against home equity loans and getting close to 9% returns,” adds Polyzois.

Liquidity is supported by a 30% interest rate cap during crunches, incentivising fresh capital and borrower deleveraging. Funds are transacted using YLDS, an SEC-registered, yielding stablecoin (a type of cryptocurrency that aims to maintain a stable value and is backed by money-market instruments), which allows for instant settlements.

Is blockchain the next frontier of securitisation?

Figure is also adding over US$600m in RWAs monthly to Provenance Blockchain and intends to expand Democratized Prime to include loans backed by cryptocurrency and first-lien mortgages.

“We are laying the rails for capital markets 2.0,” says Polyzois. “The end-state is one in which these real-world assets spend their entire lifecycle on the blockchain – origination, interim financing, trading in the secondary market, securitisation etc, with high liquidity, transferability and transactional efficiency.”

Figure sees retail participation in private credit as a transformative step, similar to the role GSEs Fannie Mae and Freddie Mac played in the mortgage market. The firm is also monitoring the adoption of UCC Article 12, which would support on-chain treatment of financial assets as Controllable Electronic Records (CERs).

“Demo Prime is part of our broader plan to create an on-ramp to the capital markets for private credit and possibly other private assets. Figure’s blockchain-based innovation has the potential to transform the capital markets,” says Polyzois.

Figure’s move follows growing industry momentum around blockchain-based private credit. In January, Apollo partnered with tokenisation platform Securitize to bring private debt funds on-chain, offering digital securities to a wider range of investors.

Marta Canini

ABS

Views from Barcelona: ABS held its ground amid April chaos

The European ABS market has demonstrated superior performance compared to other fixed income asset classes, according to speakers at FT Live Fixed Income Events’ Global ABS conference. During the ‘Stability among chaos: capital markets forecast’ panel, they noted how the ABS market navigated the uncertainty and shock of April and ‘Liberation Day’.

“European ABS performed well versus alternatives like corporate credit and Tier Ones, which speaks to the stability of the space compared to the financial crisis,” one panellist confirmed.

This robustness is particularly notable in a macroeconomic environment with limited backstops. “Can you bail out Greece? Yes, you can. But can you bail out America in the trillions? No, you can't,” remarked another panellist.

They added: “There is no lender of last resort; the US is the lender of last resort. So, if they have a problem, then we all have a problem.”

In other words, confidence in self-sustaining market mechanisms is more crucial than ever and ABS has largely held its ground.

The market has not been immune to shocks, however. One critical event this year was ‘Liberation Day’, which revealed itself to be the main focus point of discussion from which the ‘chaos’ stemmed. “Before Liberation Day, we were on track and had good levels of demand, with deals pricing tighter and tighter,” the speaker recalled. “However, post-Liberation Day, the deals slowed down and stopped for some time.”

This sudden freeze mirrored a broader risk-off sentiment across credit markets, but ABS recovered faster than expected. “The impacts of tariffs can be seen everywhere and all the asset classes can have a negative downturn and long-term issues if this continues,” the speaker warned.

In the wake of Liberation Day, the secondary market turned cautious. “We waited for the primary market to restart and recreate a benchmark,” the panellist explained.

Encouragingly, within just a week, the first German transactions cleared, restoring confidence. “The reaction of the market was back to being good in a short period of time,” with further deals launched shortly after and receiving “good feedback from investors.”

This rapid normalisation demonstrates strong underlying demand and a healthy investor base for structured credit in Europe, even amid macro uncertainty. It also reflects how far the market infrastructure has come since the days of 2008, with better transparency, pricing discipline and investor education.

Despite the rebound, caution remains. As the second half of 2025 gets underway, the key themes will likely remain geopolitical sensitivity, inflation containment and the sustainability of investor appetite. If the ABS market continues to show discipline and transparency, it may well continue to outperform in a shifting world.

Matthew Manders

Structured Finance

Views from Barcelona: EC vote, positive CLO outlook and fintech considerations

Global ABS participants anticipate smoother sailing ahead for CLOs and await post-ESA report European Commission vote

Securitisation markets may benefit from increased stability in the months ahead, according to speakers at FT Live Fixed Income Events' Global ABS conference. Practitioners broadly expressed hope that turbulence surrounding Trump’s Liberation Day tariffs was easing, and looked ahead as the European Commission prepares to vote on the joint committee proposals for EU securitisation regulation.

The new proposed regulations based on proposals from the European Supervisory Authorities (ESAs) were widely discussed in Barcelona. In a number of meetings and panels, participants shared expectations for the proposals that are being put to the vote on 17 June. 

Generally, sentiment ahead of the committee’s decision was cautiously optimistic, as many practitioners hope the package will help attract investors into the market. However, some expressed doubts surrounding the finer details of any eventual changes. Conversations around risk retention proposals, which received a lukewarm response from many in the market when they were announced, suggest the committee may move to vertical retention and repo’ing the senior part.

Industry experts also discussed the current state of play for the CLO market across multiple panels and roundtables, as well as what to expect in future. With tight spreads and positive signs of recovery, positive sentiment appeared to fill the air. After issuance stalled during the US tariff announcements back in April, the market has since picked up. 

However, investors report being cautious, aware of the risks of macroeconomic uncertainty and ongoing geopolitical tension. On a more forward-looking basis, market participants shared hopes of spreads remaining tight and triple-A tranches pushing the flow of CLOs.

Fintech and private credit

During Tuesday’s Digital Credit: Best (and Worst) Investment Practices from Scaling with Fintech Originators panel, participants discussed the key elements to identify good originators.

According to one speaker, market participants should study three key points to determine if an originator is a good one: their underwritings and assets, the platform itself (including the team and its sponsors) and deployment. “What always bites in the end is the distribution,” said the participant.

When discussing the risk of failed partnerships with originators, participants shared different factors to be conscious of. Citing past experience, one speaker mentioned the importance of timing: “We had the capital, we were just too late to the market. We tried to go more niche after that but it didn’t work”. 

Another mentioned the need to find originators focusing on the esoteric strategic side of the market: “If you are a generic originator, there is very little we can do for you,” they said.

Marina Torres

Capital Relief Trades

Views from Barcelona: EC capital proposal could be 'transformational'

The SRT market continues to gather momentum, with 2025 shaping up to be a year of growth and diversification, according to speakers at AFME and FT Live’s Global ABS conference. ‘De-Risky Business: SRT Market Overview’ panellists pointed to a broadening issuer base, surging investor demand and regulatory developments as key drivers behind the sector’s evolution.

“SRT is no longer just a niche risk management tool; it’s becoming a core part of capital planning for many banks,” said one panellist. “We’re seeing more issuers, more pragmatism and a strategic shift where banks internalise SRT - not only for regulatory reasons, but also as a recurring element of balance sheet management.”

Geographic expansion is also reshaping the landscape. While Europe remains the SRT heartland, conversations with originators in new jurisdictions are picking up.

“We’re now having credible dialogues outside Europe. It’s not just a Eurozone game anymore,” a panellist noted.

Perhaps the most consequential development on the horizon is regulatory. Recent proposals from the European Commission to lower the capital requirements for senior tranches could prove to be transformational.

“This move could reduce the cost of capital relief by between 50bp and 2%, especially benefitting residential mortgage portfolios,” said one speaker. “It’s a huge win for the market.”

As the second half of 2025 begins, the SRT market shows every sign of staying “full steam ahead”. But its sustainability will depend on ongoing transparency, investor discipline and how issuers respond to the evolving regulatory and economic environment.

Matthew Manders

Capital Relief Trades

Latest SRTx fixings released

EU/US divergence revealed

While last month’s SRTx data points illustrated a one-directional widening in spreads and credit risk, this month’s figures point to an overall divergence between the European and US markets.

Analysing the broader macro picture, investors and market participants largely suggest that, as severe as the market reaction was to tariff announcements, the rally has been equally impressive within for credit investors. The push-pull between strong technicals and increasingly weakening fundamentals should continue in the medium term. Attractive all-in yields strategies should keep demand for fixed income products strong, particularly if inflation cools. Furthermore, in the current context of uncertainty, SRT’s typically floating-rate nature is perceived as attractive for investors seeking more defensive assets.

Naturally, the SRT market encompasses diverse reference assets, and their performance naturally differs across originators. Additionally, assets originated by banks for their own balance sheets have typically shown stronger performance than those found in generic credit indices. In that sense, in its Reg Cap Recap, Seer Capital Management notes that: “We continue to observe strong credit performance almost universally, with only a few positions requiring closer monitoring due to minor negative credit migration or default trends.”

Finally, the recent EU regulatory draft proposals – leaked in the last couple of weeks – overall suggest that SRT issuance would become more capital efficient for issuers, spurring further growth.

The latest SRTx Spread Indexes highlight a moderate divergence between the European and US markets (Large corporate: EU -7.3%, US +1.0%; SME: EU -0.9%, US +5.3%), generally reflecting a retraced modest widening seen in aftermath of the tariff announcements (in April).

The SRTx Spread Indexes now stand at 795, 656, 849 and 1,185 for the SRTx CORP EU, SRTx CORP US, SRTx SME EU and SRTx SME US categories respectively, as of the 30 May valuation date. 

In terms of figures, the latest SRTx volatility fixings clearly point to a dampened market volatility outlook (Large corporate: EU -28.0%, US -1.2%; SME: EU 23.5%, US 0.0%). The magnitude in drops however, equally underscores the EU/US divergence.

The SRTx Volatility Index values now stand at 50, 70, 53 and 75 for the SRTx CORP VOL EU, SRTx CORP VOL US, SRTx SME VOL EU and SRTx SME VOL US indexes respectively.

The  SRTx sentiment for market liquidity, once again, illustrates the EU/US bifurcation (Large corporate: EU -16.8%, US +12.0%; SME: EU -16.8%, US +16.1%), perhaps rationalising recent volumes seen of benchmark EU deals.

The SRTx Liquidity Indexes stand at 53, 70, 53 and 81 across SRTx CORP LIQ EU, SRTx CORP LIQ US, SRTx SME LIQ EU and SRTx SME LIQ US respectively.

Finally, the credit risk outlook is moderately better across the board (Large corporate: EU -20.3%, US +-18.3%; SME: EU -12.0%, US -11.6%). While all figures still sit above the 50 benchmark and medium, the lack of dispersion supports the positive credit performance of the asset class mentioned above.

The SRTx Credit Risk Indexes now stand at 53 for SRTx CORP RISK EU, 58 for SRTx CORP RISK US, 56 for SRTx SME RISK EU and 70 for SRTx SME RISK US.

SRTx coverage includes large corporate and SME reference pools across the EU and US economic regions. The index suite comprises a quantitative spread index - which is based on survey estimates for a representative transaction (the SRTx Benchmark Deal) that has specified terms for structure and portfolio composition - and three qualitative indexes, which measure market sentiment on pricing volatility, transaction liquidity and credit risk.

Specifically, the SRTx Volatility Indexes gauge market sentiment for the magnitude of fixed-spread pricing volatility over the near term. The index scale is 0-100, with levels above 50 indicating a higher proportion of respondents estimating volatility moving higher.

The SRTx Liquidity Indexes gauge market sentiment for SRT execution conditions in terms of successfully completing a deal in the near term. Again, the index scale is 0-100, with levels above 50 indicating a higher proportion of respondents estimating that liquidity is worsening.

Finally, the SRTx Credit Risk Indexes gauge market sentiment on the direction of fundamental SRT reference pool credit risk over the near term. The index scale is 0-100, with levels above 50 indicating a higher proportion of respondents estimating that credit risk is worsening.

The objective of the index suite is to depict changes in market sentiment, the magnitude of such change and the dispersion of market opinion around volatility, liquidity and credit risk.

The indexes are surveyed on a monthly basis and recalculated on the last trading day of the month. SCI is the index licensor and the calculation agent is Mark Fontanilla & Co.

For further information on SRTx or to register your interest as a contributor to the index, click here.

Vincent Nadeau

Capital Relief Trades

One begets another: Third Coast gets new deal thanks to April execution

Innovative APV/ABS structure allows drastic reduction in RW

Texas lender Third Coast Bank, with assets of US$5bn, last week week completed its second securitization of assets with EJF to secure reduction of concentration risk and capital requirements, but it was able to contract the loans packaged into this new deal thanks to the headlines generated by the first transaction two months ago, says the bank. 

“The deal in April elicited a lot of interest from our customers because it showed we can lead big deals, that otherwise we probably weren’t big enough to do,” cfo John McWhorter told SCI.

This latest trade incorporated the securitization into an SPV of four loans to developers of single-family homes, two of which were new assets and two of which were already on the books.

The biggest borrower took down US$220m, US$120m of which was syndicated to other lenders, the remaining US$100m was kept back by Third Coast and of that US$60m was sold into the securitization. This is the sizeable loan that Third Coast believes would have impossible without the first deal and without the flexibility created by the ABS/SPV structure.

The other three borrowers contributed the balance of the total deal size of US$150m. Of that, Third Coast took back US$127.5m, or 85% of the total, while EJF took a 15% slug. In April’s deal, Third Coast retained US$78m and EJF bought 22% of the US$100m principal, or US$22m.

Although Third Coast is taking back a hefty slug of the deal principal, it is buying it from the SPV so is, in effect, buying an ABS. This means it carries a risk weight of 20%, rather than 100% which a plain vanilla loan to a housing developer would carry. That’s the special sauce of these deals.

The loans are to single family home builders, not to developers of, say malls or offices, but to the bank it counts as commercial real estate (CRE) exposure.

One of the borrowers in the original transaction in early April was Starwood Capital, a private credit firm with a real estate focus. It bought the 11 planned communities in Texas for US$800m from Hines, another real estate investment manager.

"This is a high-quality portfolio created by a first-class investment manager and developer, and we plan to build upon the excellent work Hines has completed to-date and bring the development vision for these communities to fruition," said Mike Moser, ceo of Starwood Land at the time in a press release.

Such was the profile captured by Third Coast’s role in this trade, its services were sought from the new US$220m borrower in a reverse inquiry. “A known customer reached out to us when they saw the Starwood deal and said ‘we want you to lead our deal too.’ We have not led many of these deals because they are big commercial clients and the perception was that we are too small. The original deal raised our profile enough to do this and now there is a lot more confidence,” explains McWhorter.

Though no new deals are currently planned, the bank now has the know-how to do more, he adds.

Simon Boughey

Capital Relief Trades

Proceed with caution: SRT market navigates macro uncertainty

Eagle Point Credit Management discusses current trends

‘To proceed with caution’ is the underlying message echoed by market participants as global uncertainty continues to cloud the outlook for trade, and capital regulation remains a topic under scrutiny. 

The SRT market, which experienced another record year last with total issuance reaching US$29bn, may face some headwinds in the near term. Issuance from banks has been strong, unsurprisingly mostly driven by European banks. "However, we haven’t seen much from US banks, which isn’t surprising – given that the regulators have signalled a potential relaxation of capital rules," says Karan Chabba, head of RCR/Specialty Finance at Eagle Point Credit Management (Eagle Point).  

While it is true that US authorities are pointing toward a relaxation of capital requirements for banks, this shift may still fall short of giving the SRT market its long-awaited boost in the region.  

Beyond regulations, practical considerations also currently shape the banks' approach to this market. “Most major US banks have already tested their ability to execute with at least one deal, so there’s little need for them to pursue multiple transactions at this stage. As a result, there’s no rush from the big US banks, though we may see some activity from smaller lenders – similar to last year’s auto loan securitisations”, Chabba explains. 

Not everything is bleak in the market, though – and EU banks are stepping up to carry the load. Market experts suggest the region will remain active across jurisdictions, even if European regulations on bank capital requirements undergo upcoming adjustments. “They (European banks) have been using this strategy for several years now, and even if there’s a slight relaxation in capital rules for them - which is possible – we believe they’ll continue to use this route to optimise their balance sheets”, Chabba continues.  

Building on the ever-expanding SRT space in Europe, Chabba confirms that Eagle Point continues to engage with major European Banks, describing the space as “pretty attractive – both for the diversity and quality of collateral in these transactions, and for the risk-return profile we can achieve.” 

With over US$12bn in assets under management, Eagle Point leverages its broad expertise to navigate this space. Chabba points to Eagle Point’s ability to bid across different classes as a clear and differentiating strength. He says: “We can analyse granular pools, such as consumer loans, and even work with disclosed pools across diverse asset classes because we have the internal expertise to handle both”. 

Expanding on the underlying asset classes currently being offered in the market, Chabba points out that not much has changed in the past few years. The market is still mostly dominated by large corporate transactions, a few granular SME deals, on-and-off consumer as well as auto transactions. In parallel, esoteric asset classes continue to be a go-to for banks seeking to obtain capital relief and optimise their balance sheets – including sublines, which Eagle Point has previously worked on, along with corporate finance transactions.  

Despite the inherent challenges of the fundraising environment, Chabba noted that interest from LPs remains palpable. The continued engagement suggests there is still momentum in the space, though many are waiting to see where it ultimately leads.  

“The SRT space is subject to how the economy shapes up going forward. There is significant uncertainty around the potential path of the economy due to the unclear direction of global trade relationships, so how this resolves in the next few months will be important to watch. We haven’t yet seen any material impact in the hard economic data on global output, but it’s possible the numbers could weaken.”

He concludes: "We are therefore monitoring the situation carefully and approaching credit cautiously.”

Dina Zelaya

Capital Relief Trades

Views from Barcelona: Unfunded SRT volumes to double

Unfunded SRT deals could double over the next three to five years, according to Munich RE’s Michael Heckl. Speaking at FT Live Fixed Income Events’ Global ABS conference, Heckl said the volume of insurance-protected tranches post-syndication is expected to grow, though the (re)insurance market remains small, with just 14 active insurers in Europe. Insurance-backed deals made up just 11% of the total €29bn SRT market issuance in 2024. 

Arch Insurance’s Ruairi Neville added and confirmed that European jurisdictions continue to dominate SRT issuance, with Arch active in countries such as Hungary and Croatia. The UK, he added, is also viewed as a growing opportunity. 

Meanwhile, Catherine Tuckett from Liberty Specialty Markets highlighted increasing bank interest in diversifying SRT investor bases, with insurers seeking exposure to SMEs and leveraged loans via synthetic structures. 

Axis Capital’s Victor Ong pointed to growing interest in project finance SRTs across emerging markets including CEE, Africa and Asia. He noted that (re)insurers are showing greater appetite for higher-risk or esoteric assets. 

ESG-linked assets remain a key focus for (re)insurers such as Arch. Despite its niche status, the SRT (re)insurance market is gaining traction as more insurers look beyond traditional asset classes for yield and diversification. 

Nadezhda Bratanova

CLOs

Explosive CLO growth fuels Palmer Square's global ETF strategy

CLO Market surges to US$1trn as Palmer Square marks 10 years of indices and expands global ETF platform

The value of the global CLO market has grown by a factor of approximately 2,500 in the last decade, according to Palmer Square Capital Management.

In its latest statement announcing the 10th anniversary of its CLO debt indices, Palmer Square, says the CLO market, “is one of the fastest growing areas of global structured credit, growing from approximately US$400m 10 years ago to more than US$1trn in market value.”

Speaking to SCI, Chris Long, CEO and founder at Palmer Square, says the CLO market has benefited from the widespread demand for floating rate assets from new investors after a period of low interest rates following the 2008 financial crisis, but the scalability the CLO market now has to offer is particularly enticing for larger investors.

“While the demand for floating rate assets is not new, there is an increased demand from new investors after a long period of low interest rates. Additionally, with the size of the CLO market now, it has become the most scalable triple-A floating rate option for investors like US and Japanese Banks as well as large asset managers.”

Long explains the significant growth already seen in the CLO market has given the asset class considerable status among investors.

“The overall size of the CLO market begets more growth and makes it hard to miss illustrating to investors that CLOs are a major factor in the corporate credit ecosystem and not a small corner of the market.”

He also points out that the CLOs as an investment vehicle have diversified to meet the needs of investors.

“CLOs as an investable asset class themselves have diversified in the past decade. The most notable development is the development of reinvesting vs static CLOs. What’s more, reinvesting CLOs have further diversified with one, two, three and five-year reinvesting periods. There are now several CLO tranche durations available from static to a five-year reinvestment period so that investors can chose what suits their needs.” 

Tapping into this demand from institutional investors, Palmer Square launched two ETFs PSQA and PSQO in the US in September 2024. PSQA is the first and only passively managed US CLO-focused ETF and was launched alongside PSQO, an actively managed multi-asset ETF with access to CLO debt as well as other credit asset classes including corporate credit, bank loans, and other ABS.

The firm announced in January that it would be following this with the announcement of the launch of three EU CLO-focused ETFs later in the year which are still to be officially unveiled.

Long tells SCI the upcoming launch in Europe will supplement Palmer Squares existing CLO-focused ETF portfolio and its CLO debt indices, bringing the firm’s CLO investment platform “full circle”.

“These two US products along with the upcoming launch of our UCITS EUR CLO ETF, which will be benchmarked to our Palmer Square EUR CLO senior debt index and the only passively managed EUR CLO-focused ETF available to non-US investors really bring the market adoption of the Palmer Square Global CLO Indices full circle with products available to CLO investors across the globe.”

CLOs

Ares breaks ground with £305M European Direct Lending CLO debut

First reinvesting CLO of its kind in Europe targets middle-market defence sector loans, tapping into soaring private credit demand

Ares Management has announced the pricing of its first European Direct Lending CLO at £305m, Ares European Direct Lending CLO 1 believed to be the first reinvesting CLO in the European Direct Lending market and also one of the first direct lending CLOs issued in the region.

Ares European Direct Lending CLO 1 is a diversified CLO composed of directly originated and actively managed loans issued by more than 50 middle-market companies in the UK, which primarily operate in the defence industry, the firm says.

The asset is weighted towards senior-secured floating rate loans and rated by S&P and KBRA. The manager retains the ability to invest in broadly syndicated loans and bonds to corporate obligors. 

Eric Thompson, global head of structured finance at KBRA says: "This transaction marks a pivotal moment in the evolution of the sector and is a testament to the market’s continued dynamism. As the first of its kind, it establishes a new benchmark for the industry, and we are proud to have played a role in evaluating and rating such a landmark deal. Our team's ability to assess novel structures with rigor and insight reflects our deep expertise and commitment to fostering market confidence." 

The move will look to capitalise on strong growth in the European private credit market, which has attracted institutional investors and retail investors. Private credit AUM in Europe grew from USD$93bn in 2013 to USD$505 bn by 2023, according to data from Morgan Stanley, and has broadened its investor base to include retail investors in addition to traditional institutional investors.

“In navigating a complex and volatile market environment, we will continue to harness our investment discipline and portfolio management capabilities as we seek to generate risk-adjusted returns for our investors,” Matt Theodorakis, partner and co-head of European Direct Lending at Ares states.

This follows the launch of the first European middle market CLO in November 2024 by Barings, pointing to long-standing investor interest in the private credit space for several years, and building on the success of the seven US middle market CLOs it had previously issued since 2017.

Ares’ European Direct lending strategy was launched in 2007 and the firm has completed over 290 investments reaching over €72bn since. The company’s European Direct Lending strategy currently is made up of 95 investment professionals operating across seven offices in Europe and manages over €77bn in assets as of March 31, 2025.

In April, Ares announced the appointment of Richard Sehayek as co-head of Europe for alternative credit, where he joined European alternative credit co-head Stefano Questa.

Globally, Ares has issued 107 CLOs since 1999, of which 60 remain active today. The firm’s CLO portfolio accounts for USD$32bn of the USD$359bn managed across the Ares Credit Group.

Solomon Klappholz

CLOs

CLOs adjust amid shifting global regimes

JPMorgan sees resilient CLO market in 2025, with wider spreads, steady issuance and selective value in mezzanine and short-dated tranches

JPMorgan’s 2025 midyear outlook highlights a cautiously resilient CLO market adjusting to an evolving macroeconomic landscape marked by deglobalisation, rising term premiums and trade policy uncertainty.

Triple-A CLO spreads have widened by approximately 20bp from early-year tights, reflecting growing investor demand for compensation amid a more volatile regime. The bank now targets Tier 1 triple-A spreads at 140bp, suggesting some further spread widening is likely. However, it emphasises the robustness of CLO origination, with managers actively rotating into defensive sectors and maintaining issuance momentum despite modest cyclical headwinds.

US CLO new issue forecasts have been revised upwards to US$180bn for 2025 from US$150bn, supported by resilient loan supply and manager commitment to AUM growth. European supply is expected to reach €50bn, which has already been halfway achieved.

Meanwhile, the refi/reset market remains active, with a US forecast of US$220bn - although prone to spread volatility, as seen by a 70% drop in April volumes following a 10bp spread widening. JPMorgan maintains its European refi/reset supply forecast of €50bn.

However, even while being on a record pace, JPMorgan says it does not anticipate that refi/reset volumes will surpass last year’s pinnacle.

While CLO ETF inflows have grown more volatile and the space increasingly crowded (with 27 US fund providers), overall BWIC activity remains elevated, up 33% year-over-year to US$31bn, highlighting a liquid and active secondary market.

Credit metrics remain solid, with US triple-C exposure declining to 4.1%-4.4% and diversity scores trending upward across regions, the bank notes.

JPMorgan identifies key relative value opportunities in triple-B mezzanine tranches, recent-vintage Euro CLO triple-As and short-dated US triple-A refis offering 115bp-125bp spreads.

Amid rising Treasury yields and shifting global trade dynamics, the bank views CLOs as well-positioned for carry and diversification, while closely monitoring duration risk and credit dispersion into 2026.

Ramla Soni

Regulation

FDIC fires SLR reform salvo

Banking regulator issues proposal to change current rules

The Federal Deposit Insurance Corporation (FDIC) last Friday (June 6) filed a proposal for reform of the Supplementary Leverage Ratio (SLR) with the Office of Management and Budget (OMB) which is thought to include requests to lighten the capital burden on banks.

The details of the proposal, catchily titled “Modifications to Supplementary Leverage Capital Requirements for Large Banking Organizations; Total Loss-Absorbing Capacity Requirements for US Global Systemically Important Bank Holding Companies,” will not be released until the FDIC has voted on it, and this is likely to be 30-45 days after filing – although it could be sooner.

Reform of the SLR has been on the cards for some time. The 3% minimum SLR, incorporated from Basel III standards finalized in 2011, applies to all category I, II and III banks in the US. Effectively this means all banks over US$250bn in assets. But US regulators slapped on an extra 2% for the GSIBs, taking it up to 5% for the big banks.

Crucially, the SLR is not risk-based. It simply counts up the total amount of assets according to current accounting values and assesses the capital due on that basis.

There is reasonably broadly shared belief that the SLR has been inimical to the health of the US capital markets. For one thing, it discourages holding of risk-free or low risk assets like Treasuries of agency MBS as the SLR due on these is the same as it would be on, say, holdings of high yield bonds or commercial real estate (CRE) assets. When Treasuries were temporarily excluded from the SLR during the market paralysis of the first weeks of the pandemic in 2020, liquidity improved appreciably.

So, any reform of the SLR could entail permanent exclusion of Treasuries, or a more broad-based reduction of the threshold. It could also simply reduce the extra 2% SLR that the GSIBs are required to hold, bringing US rules in line with international standards. However, market experts think this is unlikely as such a narrow proposal would not emanate from the FDIC.  

Moreover, the title of the proposal distinguishes the GSIBs from all ‘large banking organization”; it would not perhaps have done so if the changes suggested applied only to the GSIBs.

However, reform of some kind appears to be in the offing. In a speech last week, new vice-chair of supervision at the Federal Reserve Michelle Bowman said, “When leverage ratios become the binding capital constraint at an excessive level, they can create market distortions. This is especially true in the case of the enhanced supplementary leverage ratio (eSLR) which is applicable to the largest banks.”

Bowman is also on record criticising overall capital requirements to which US banks are subjected, and has also voiced her support for capital relief trades. The new Trump administration also has a noted deregulatory bias.

This will be welcome to US banks, but those hoping that this in some way will constitute fillip for the growing CRT market in the US will be disappointed; any reduction of the SLR will have only a limited, or no, effect on the US CRT market.

“This only helps CRT if banks wanted to use a reduction of SLR to buy high risk weight assets and then use CRT to reduce risk-based capital requirements.  This will free up risk weight space, but it’s one step removed from the immediate impact of any reform and I’m not sure how much it helps,” says Matt Bisanz, a partner at Mayer Brown and an expert on US banking regulation.

Simon Boughey

Asset-Backed Finance

Inside TwentyFour AM's new ABF fund

Douglas Charleston, partner and co-head of ABS at TwentyFour Asset Management, answers SCI's questions

Structured Finance

Job swaps weekly: RenaissanceRe promotes senior SRT executives

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees RenaissanceRe elevating two SRT leaders in a round of senior executive promotions. Elsewhere, Bayview Asset Management is building out its ABF capabilities with the addition of a senior advisor in its insurance asset management business, while AlbaCore Capital Group has appointed an md and portfolio manager for its European CLO platform. 

RenaissanceRe has promoted four leaders across its US and underwriting teams, including two that are involved in the firm’s SRT efforts. RJ Shea has been appointed president, Renaissance Reinsurance US, tasked with leading underwriting activities, engagement with clients and brokers, and deal execution in the US market. Mehdi Benleulmi has been appointed global head - credit, responsible for setting and executing the firm’s global credit strategy. 

Elsewhere, Jim Riley has been appointed global head - casualty, responsible for setting and executing RenRe’s global casualty strategy across reinsurance and insurance. Finally, Adriana Nivia has been named md, North America, overseeing critical operating activities across the region. 

Meanwhile, Dee Dee Sklar has joined Bayview Asset Management as a senior advisor in its insurance asset management business. She brings an extensive track record of leadership in fund finance, structured products and alternative investments, further strengthening Bayview’s position in the rapidly growing ABF market. 

Currently, Sklar serves as global co-chair of Women in Fund Finance and is actively involved in the Fund Finance Association’s business development initiatives. She is also a board member of Nuveen Churchill Private Capital Income Fund and a senior advisor to Coller Capital. 

Sklar retired as vice chair, fund finance at Wells Fargo and was the prior global head, where she led the fund finance business for nearly a decade. 

AlbaCore Capital Group has appointed Diarmuid Curran as managing director and portfolio manager. Curran will focus on AlbaCore’s European CLO platform – both new issuance and existing CLO fund management, reporting to Deborah Cohen Malka, partner and portfolio manager, who leads the CLO business. Curran joins AlbaCore from Napier Park Global Capital, where he served as a portfolio manager responsible for managing a portfolio of European loans and high yield bonds held in CLOs as well as credit selection and underwriting as a member of the Investment Committee. 

Pemberton Asset Management has made four senior North American appointments, alongside the establishment of a New York office. These hires mark the increasing demand from US and Canadian institutional investors seeking access to European mid-market opportunities, the firm says. 

Daniel Oudiz has been appointed md, NAV financing and GP solutions, bringing more than 18 years of experience in structured finance and capital markets. He has advised US and European private equity sponsors on bespoke capital raises as a md in Houlihan Lokey’s Capital Solutions group in New York and in London, following roles at Deutsche Bank across private ABS and M&A. 

Philip Edwards has been appointed senior advisor, NAV financing and GP solutions, and has 20 years of experience in advising private equity clients, most recently leading middle-market sponsor coverage at Jefferies. He has a track record spanning direct lending, mezzanine investments, and senior roles at firms including Stifel and PineBridge. 

Grant Dechert has been appointed director, business development, client group. He joins from BlackRock, where he spent nearly a decade managing institutional client relationships and advancing the firm’s alternatives pipeline. 

David Canale has been appointed head of Canada, business development, client group. Before this he was senior vice president and co-head of private capital formation at Further Capital Partners. 

KBRA has opened a new office in Tokyo, marking its first outpost in the Asia-Pacific region. To support its expansion in Japan, the rating agency has announced several key appointments. 

Peter Connolly, senior director in the structured credit team, will relocate from KBRA’s New York office to Tokyo, to support analytical coverage and client engagement. Yuuichi Hino joins as head of compliance for Japan, bringing extensive experience navigating Japan’s regulatory environment. Finally, Miki Monroe-Sheridan joins as head of business development, leading engagement efforts with local market participants and further strengthen KBRA’s regional partnerships. 

Edward Southgate has rejoined Morgan Lewis as a partner in its structured transactions practice, based in New York. Southgate was previously a partner in Dechert’s global finance practice, which he joined in March 2022, having been of counsel at Morgan Lewis before that. He represents financial institutions, issuers and underwriters in private placements of RMBS and ABS, with a particular focus on consumer lending and fintech. 

Also joining the firm from Dechert’s global finance group is associate Victoria Kaplan. She has been appointed of counsel and is based in Philadelphia. 

Ocorian has appointed Lisa Seidel as commercial director within its capital markets team. Based in London, she will play a key role in driving the continued expansion of Ocorian’s capital markets services across Europe, with a particular focus on structured finance solutions, the firm said. Seidel brings more than 15 years’ experience in the financial services sector, having held senior roles at BNY, Wells Fargo, and most recently CSC, where she focused on business development in Western Europe. Prior to that she was a solicitor at Clifford Chance in Frankfurt and Freshfields in London focusing on securitisations. 

CBRE has appointed Dean Harris to lead its loan servicing business for Europe, reporting to Clarence Dixon, global head of loan services. Harris joins from Trimont, where he has spent the last six years leading the firm’s EMEA advisory and servicing business. Prior to this, he was head of asset management at Situs, where he led a team managing CRE loans of circa €10bn. 

Hayfin has recruited Antonio Gomez-Tembleque as an md in its private credit team focused on real estate investments. Based in Hayfin’s Madrid office, he joins from Apollo Global Management, where he led investment and asset management initiatives across Europe. This included responsibilities at Lapithus Management involving both performing and non-performing loans, as well as direct real estate investments, CMBS and RMBS.  

Gomez-Tembleque also previously served as finance director for Europe and Asia at Apollo Management International and spent a decade at PwC in New York and Madrid, where he was a director in the capital markets group. 

And finally, fund administration services provider Linnovate Partners has hired Scott Reid, formerly Asia Pacific head of debt capital markets at Alter Domus, as head of private credit and loan administration, based in its Singapore office. Reid left Alter Domus in February after four years with the business and has previously held senior positions at Madison Pacific, Harneys Fiduciary and Appleby Fiduciary. 

Corinne Smith, Ramla Soni, Kenny Wastell