Ymer, PennantPark Push Into European Risk Retention Financing

More firms are pushing into European CLO risk retention financing as the growing manager base and regulatory changes drive demand for this service.

Ymer and PennantPark have both provided funding to European securitization sponsors and are looking to grow their businesses, according to sources.

The pair are increasing competition for Nearwater Capital, which is the dominant provider of financing for CLO and other securitized product sponsors that have to retain a portion of their deals as “skin in the game” under EU/U.K. securitization regulation rules.

Nordic alternative credit fund Ymer has already supported several CLOs, including one by CVC, Octus understands. The firm recently hired Theo Fleishman, a former managing director at Nearwater Capital from 2021 to 2025. Ymer is already a significant CLO equity investor in Europe.

PennantPark is hiring in London to grow its European presence, a source close to the firm told Octus. The Miami-based middle market credit provider began lending to European sponsors earlier this year through its Dublin-registered affiliate PennantPark Funding Ireland DAV, and has been supporting U.S. sponsors since the middle of 2025. Jonathan Kitei is leading the platform. He previously spent more than three years as head of risk retention financing at Nearwater Capital.

Spokespeople for Ymer and PennantPark declined to comment. CVC did not respond to a request for comment.

EU and U.K. regulators require CLO managers to retain 5% of the economic interest in their deals. They can either hold a horizontal exposure – equity worth 5% of the nominal deal value – or a vertical slice – 5% of the value of each tranche.

Risk retention lenders offer a repurchase agreement, or repo, to holders of vertical slices. The risk retention holder pledges its portions of the debt tranches to the repo counterparty – such as Nearwater, Ymer or PennantPark – and agrees to buy them back at par when the CLO matures.

The original bondholder remains exposed to the risk, but has to commit less capital to holding its own debt. For this service, the counterparty typically charges about 50 bps on top of the bond coupon.

Almost all CLO managers who opt for vertical risk retention also use repos to free up the capital, market participants said.

Nearwater Capital is the lead provider of risk retention financing in Europe, with a market share described as “huge” by a competitor. Chenavari is active in the space to a smaller extent. Some banks – like Jefferies and Citi – also offer services related to risk retention financing.

The growing European manager base is offering more opportunities for competitors to come in. According to the Octus Warehouse Tracker and this week’s news on BTG Pactual, at least 18 firms are preparing to enter the European CLO market.

Demand for repo financing also increased after European regulators clarified their interpretation of the “sole purpose test” in risk retention rules last year, saying that third-party equity vehicles must generate more than 50% of their revenue from sources other than the retained interest to qualify as an originator. In the aftermath, several managers switched from horizontal to vertical retention because debt tranches pay less than equity, reducing the revenue.