(Bloomberg) -- Barings LLC is poised to start a middle-market collateralized loan obligation in Europe, kickstarting a nascent strategy that appeals to a number of leading private credit firms in the region.
The US asset manager launched a warehouse vehicle for a debut European middle-market CLO, according to public filings, an early sign of a fresh strategy to bundle private credit loans into a CLO.
The vehicle, named Barings Euro Middle Market CLO 2024-1 DAC, was filed at the Irish companies’ registration office earlier this month. A Barings spokesperson declined to comment.
Europe is lagging the US in developing a market for private credit CLOs because the asset class has only just reached the size needed for these types of instruments to work. Typically, CLOs buy corporate leveraged loans arranged by banks in the broadly syndicated loan market and carve them up into bonds of varying degrees of risk and return. In the case of private credit CLOs, the loans come from direct lending firms.
These vehicles should offer higher yields than traditional CLOs, given margins are higher in the industry due to the lack of liquidity in the asset class.
While discussions about creating private credit CLOs in Europe have taken place over the last few years, a large offering is yet to be seen. But a handful of direct lenders now have enough loans to tap this alternative way of fundraising, Bloomberg previously reported.
The push for European private credit CLOs is part of efforts by the industry to open up new sources of capital in the face of a global slowdown in fund-raising.
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