Cairn Capital launches CLO - FT.com Cairn Capital has put together the first collateralised loan obligation in Europe since the financial crisis, raising hopes that a once important source of regional corporate funding might be making a come back. The London-based credit manager successfully sold the €300m structured vehicle after months of marketing, beating Pramerica - a rival manager also close to its own deal - to the glory of being the one to kick-start a moribund market. CLOs buy corporate loans used mainly to fund leveraged buyouts and bundle them into a single investable package. They were the main source of funding for the once €220bn European leveraged loan market for mainly pre-crisis corporate buyouts. But since 2007, regulation and weak markets have proven about €70bn in loans, are mostly reaching the end of their five to seven-year investment lives this year and next. The deal is the first CLO ever to comply with new European regulations governing structured products, which require those managing new CLOs to keep some "skin in the game" by holding a slice of equity in their own device. It is hard for most managers to keep so much capital on their books. But Cairn has managed to navigate around these rules by getting a US pension fund to hold the equity stake on its behalf and agree not to sell or to hedge it. The deal has only been made possible by strong market conditions in recent months following central bank action last year. This "risk on" mentality lifted the price of existing CLOs to a point where the economics of creating a new one made sense. Still, the deal is much more conservative in nature than pre-crisis versions, with around five times leverage compared to the 10 times five years ago. It also specifies that the vehicle will buy 90 per cent senior secured loans. Hopes are brewing that the Cairn CLO will prompt a rash of other deals and help fill the looming funding gap in Europe. But analysts say a resurgence will be held back by the lack of available paper to buy in Europe amid still-weak deal activity. "The main issue is going to be sourcing the paper," said Dan Gardner, European loan fund manager at M&G. "But supply this year is likely to be higher than in 2012, which in turn should provide a better backdrop for new CLO creation." In the US, where the loan market has been more buoyant and the "skin in the game" rules do not apply, there was $55bn of new CLO issuance last year, the biggest annual total since the crisis.