Carlyle’s European leveraged loan group and
The first bespoke European synthetic leveraged loan CLO was closed late in 2007 by
“We feel this market will explode and will become as big, if not bigger than the cash market,” a banker involved said. “The comparison is investment grade CDS, where the notional is in the many trillions of US dollars. We think it is only a matter of time before LCDS notional is in the hundreds of billions.”
Growth prospects are already evident in the European LCDX index, which is due to roll at the end of the first quarter and where the number of names is expected to double from 35 to 70. Along with a continued increase in name diversity, the index is expected to start tranche trading, adding to its allure.
The €300m
By using single tranche technology, investors are able to come in on a funded or unfunded basis. Investing on an unfunded basis means that buyers are paid yield without having to commit cash, something that gives a huge kicker to the return.
The LCDS single name format also makes it easier to get exposure across a range of currencies, as well as offering investors the opportunity to buy cancellable or non-cancellable contracts. Another advantage over cash is that the deal can be structured as a bullet – in this case as a five-year – which means there is no call risk.