European CLOs: Opportunity in Manager Triple-A Dispersion

Research evidence excerpt

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14 Aug 2026 13:10:34 ET │ 8 pages

European CLOs

Opportunity in Manager Triple-A Dispersion

CITI'S TAKE

EUR CLO triple-As which had lagged the rally in IG mezz are finding their feet

with demand from asset managers, including the growing ETF segment. We

find manager performance from our regular Citi EUR CLO Scorecard or their

AUM are not always reflected in liability pricing. The dispersion leaves

spread pick-up opportunities for investors.

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Ratul Roy AC

Jovita Li AC

Triple-A catching buyer attention — Triple-A spreads did not see the tightening

that IG mezz enjoyed in the early part of the year (Figure 1) but are beginning to not

look so cheap, with the premium to triple-B being the most prominent. The search

for yield by IG buyers also led to triple-As underperforming mezz as far as YTD

returns are concerned (Figure 2). More recently, however, the relative value in the

senior bonds that we highlighted in Global CLO Market 2026 H1 Update have finally

caught buyers’ attention including the small but growing EUR CLO ETF market. To

re-iterate our earlier point, floating rate senior bonds not only appeal during times

of rising rates but also offer credit protection in current times of macro uncertainty.

Dispersion in new issue only partly to do with “new” manager or AUM — The

pricing in the new issue market shows that dispersion has increased (Figure 3). To

some extent this has to do with the number of newer EUR CLO managers. While a

healthy proportion of new managers have loan platforms and experience of CLO

management in US, investors will typically expect a new manager discount (even if

new managers will typically start with conservative pools). Despite these rational

preferences, we find that AAA pricing only correlates loosely with AUM. We also find

more experienced managers can price new deals at the wider end, even though they

have improved tail risk (based on change in junior OC cushion; see Figure 4) for their

existing deals. This should signal opportunities for buyers if they can pick up a few

more basis points for signs of an improving credit management story.

Poor pre-reset history vs. spread pick-up and seniority — Legacy deals that have

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