Blog Post
Octus on Credit: European CLO Market Rocked by Wave of Distressed Loan Issuers Led by France
Robert Schach, Deputy Managing Editor - EMEA
The European CLO market presents a fascinating dichotomy for investors. While the technical picture remains healthy – robust issuance, AAA spreads in the manageable low 100s, and strong warehousing activity – significant stress is building beneath the surface, creating both risks and opportunities.
CLO managers are absorbing substantial hits as several large loans turn distressed. Kloeckner Pentaplast delivered one of the biggest blows, deteriorating from a promised refinancing to full restructuring – its €1.2 billion first lien now trading in the low 60s, creating painful mark-to-market losses across portfolios.
The French exposure concentration, however, is particularly noteworthy. With Colisee‘s €1.165 billion restructuring underway, Cerba‘s €1.875 billion heading toward trouble, and Seqens‘ €930 million at risk, we’re seeing over €4 billion of distressed French loans hitting simultaneously. This geographic and temporal concentration is creating acute challenges for managers with overlapping exposures.
The stressed loan pipeline – Biscuit International, Amedes, Foundever, Ingenico, Breitling, Lipton Tea, BME Group – spans diverse sectors from consumer goods to business services. This isn’t just a temporary blip but potentially the beginning of a broader credit deterioration cycle that savvy investors need to navigate.
For CLO investors, this environment creates clear differentiation opportunities. Managers with superior workout capabilities and truly diversified portfolios should outperform, while those with concentrated exposures face potential over collateralization test pressures and distribution challenges.
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