Barings is set to introduce a middle-market collateralised loan obligation (CLO) in Europe, amid growing interest in the strategy from several private credit firms in the region, according to a report by Bloomberg.
The report cites public filings as revealing that the US asset manager has launched a warehouse vehicle for its inaugural European middle-market CLO, signalling the company’s intention to package private credit loans into a CLO structure. The vehicle, named Barings Euro Middle Market CLO 2024-1 DAC, was registered earlier this month at the Irish companies’ registration office.
Europe has been slower than the US in developing a market for private credit CLOs, largely because the asset class has only recently grown large enough to support such instruments. Traditionally, CLOs buy corporate leveraged loans from the syndicated loan market and divide them into bonds with varying levels of risk and return. In private credit CLOs, however, the loans come directly from lending firms.
These new CLO structures are expected to offer higher yields than traditional ones, as private credit loans typically have higher margins due to the asset class’s illiquidity.
While discussions about launching private credit CLOs in Europe have been ongoing for several years, a major offering has yet to materialise. A handful of direct lenders now have sufficient loans to consider this alternative method of fundraising, according to an earlier Bloomberg report.
