European CLO Managers Hold On to Downgraded Colisee Group Loan

Several European CLO managers said that they are holding on to their positions in Colisee Group after S&P Global Ratings downgraded the credit to CCC-. The price of the loans plunged following the company’s request to defer interest payments.

More than half of European CLO managers own Colisee’s debt across 404 deals, according to Octus’ CLO Database.

Trading activity in the French care home operator’s €1.2 billion term loan B was elevated this week, a loan banker told Octus, formerly Reorg.

A CLO manager spoke of a “little bit of a flurry” observed by their trading desk, “some of which traded.” Market sources suggested that managers who held the loans in warehouses felt higher pressure to sell, as investors would not welcome a potentially distressed name in a new-issue CLO.

Several of the CLO managers contacted by Octus said that they are holding off selling until they have more clarity on the sustainability of Colisee’s capital structure.

“We considered selling, but with the price in freefall, it makes no sense,” a second CLO manager told Octus. “It makes more sense to wait and see where the EBITDA is.”

Bid prices on the term loan B dropped from about 90 to the mid-60s between March 14 and March 18, according to Solve data. Several sources told Octus that the loans traded at about 60 on March 19.

A distressed debt investor told Octus that they are “absolutely” interested in buying Colisee’s debt. “It’s got the potential to be quite interesting,” the investor added.

Last week, Octus reported in depth on Colisee’s liquidity problems and the turnaround plan considered by S&P to carry execution risk.

A CLO equity investor said managers should have marked assets as defaulted right after the earnings call at the end of last week. “They shouldn’t wait until it gets downgraded to an inevitable triple-C to react,” the investor added.

The downgrade of Colisee Group could have a significant impact on European CLO triple-C buckets, according to sources. S&P downgraded the French care home operator to CCC- from B- on March 18.

Several sources pointed out that the holders include well-established CLO managers reputed for their conservative investment style.

“Everyone has been so focused on Altice, and that seems to be the next credit issue people are going to have to digest,” a third CLO manager told Octus. “It’s very widely held, given the size of it, and historically was a decent business.”

European CLO managers with more than €30 million exposure to Colisee Group are shown below: