The rapid expansion of Europe’s issuer base in the past three years, to 51 managers from 33 at the end of 2015, might increase the need for a greater number of arrangers to accommodate the additional issuance.
Monday 16, September 2019
Japan’s largest bank will this month expand its presence in Europe’s CLO market by becoming an arranger for the first time, reported Bloomberg.
Mitsubishi UFJ Financial Group (MUFG) is arranging its debut European CLO having already been an active buyer of CLO paper in the region. The move forms part of the bank’s strategy to expand its securitized products business globally, a spokeswoman for the bank said.
The lender already arranges US CLOs—potentially giving it existing relationships to leverage off—and can open up new pockets of investors in Asia to managers. But breaking into Europe may prove a challenge.
Since the financial crisis the number of banks arranging European deals has stayed fairly static at about 12, despite an increase in the issuer base and new supply topping EUR 20 billion ($22 billion) in 2019. There may also be barriers to entry from some established managers in the region, who say they do not need any more arrangers.
MUFG’s mandate to arrange the third European CLO for NIBC Bank continues its push into securitized products, which is led by Tricia Hazelwood. The CLO business is headed by Asif Khan while in Europe the team is managed by Krishna Shah, who joined the bank in March 2016. This year the lender also hired Keith Allman from Loomis Sayles & Co. to help expand its ABS business.
Mizuho Financial Group, meanwhile, has also aired plans to line up CLOs in the region. The lender brought in Stefan Stefanov as a director for CLOs earlier this year as part of its markets reorganisation.
The ambitions of these banks come at a time of increased scrutiny by Japanese regulators, who are surveying the nation’s financial firms to determine their exposure to foreign assets including risky credit products.
Some of the US managers expanding their CLO platforms into Europe could be open to working with a less established arranger in the region, based on a strong relationship in the US market.
And being able to tap into an additional arranger may create an opportunity for those managers looking to price a deal quickly. The most active arrangers can build lengthy pipelines of warehouses that can reach back for months. Rather than wait and jostle for attention in a busy pipeline, some might opt for an arranging bank with a clearer pipeline and more time to devote to marketing the transaction.
Most managers, however, deny any scheduling issues when it comes to pricing a new issue through an active arranger. They may stay loyal to those arrangers they have proven relationships with, unless there is a compelling reason to cast their net wider.