By Smain Bouchareb, Client Relationship Director, Corporate & Institutional Clients
The European Collateralised Loan Obligation (CLO) market is entering an impressive phase of growth, driven by evolving regulations, increasing investor interest and the inherent resilience of these financial instruments.
Investors are increasingly drawn to CLO tranches due to their attractive spreads, which are higher than equivalent-rated corporate credit. With a projected value of around €50 billion in 2025, the market draws interest from institutional investor pension funds and insurance companies. Strong demand is supported by a robust pipeline of new issuances and refinancing activity.
The European M&A market presents a mixed picture in early 2025; while some areas show resilience, others are facing challenges. Overall, deal volume has decreased compared to 2024, with deal value experiencing a modest increase. This boom in CLO growth can be linked to reduced M&A activity resulting in refinancing across the leveraged finance market, lowering borrowing costs and extending loan maturities.
Market momentum builds
Last month’s Global ABS 2025 Conference in Barcelona highlighted a surge in CLO issuance particularly in the first quarter, surpassing expectations based on 2024 trends. While market sentiment experienced a brief dip due to tariff-related volatility, a resurgence in CLO activity followed, driven by strong demand and defensive structuring strategies.
The conference addressed the impact of regulatory changes on CLO investors, particularly in Europe, and the need for better communication between the industry and regulators. Key discussions focused on the importance of regulatory clarity and tax efficiency in attracting CLO managers. Emphasis was placed on the need for greater transparency and investor protection against an evolving regulatory landscape. Experts also noted that the European Commission’s revisions to securitisation rules could significantly boost market confidence and activity.
Luxembourg’s evolving framework
Luxembourg has positioned itself within this evolving landscape, particularly with the recent formation of its first CLO under the newly amended Securitisation Law of 2004. The 2022 amendments to this law have modernised the framework, especially the provisions allowing for the active management of securitised assets. Recent clarifications regarding orphan structures have provided certainty on tax treatment, removing a significant obstacle and paving the way for the first CLO transaction in the country.
Luxembourg’s financial industry brings established expertise to the market. The legal framework offers features including tax neutrality and certainty, a range of corporate forms and a streamlined listing process on the Luxembourg Stock Exchange (LuxSE). These features strengthen Luxembourg’s competitiveness within the European CLO market. The country hosts over 1,300 active securitisation vehicles with more than 8,000 compartments, representing around €400 billion in assets.
How can IQ-EQ help?
We support CLO managers navigate this dynamic landscape. With deep understanding and long-standing experience in dealing with CLOs, we offer a comprehensive suite of services. From structuring and administration to compliance and reporting we provide tailored solutions to meet the specific needs of our clients, ensuring that they can maximise the potential of their CLO investments.
New to CLOs? Read our essential guide and get in touch with our team of experts today.
