Another Fine Mezz

In this week's episode of Another Fine Mezz, host Tom Lemmon was standing in once again for the travelling George Smith, and while he expected a quiet mid-August week, the European ABS market had other ideas.

The expectation was that the market would begin to stir following the UK bank holiday on August 26, but a number of auto ABS issuers began marketing deals early to ensure investors get a good look.

It seems the expectation that September would be busy has been changed to September will be extremely busy. It could end up looking like a battle royale in no time at all. Looking further ahead, the question is how long it can last.

Meanwhile in CLOs, the market looks to be having something of a volatility hangover with deals taking a bit longer to complete and landing a bit wider.

That gave CLO reporter Austin Barnes his first opportunity to delve into the niche world of deal documentation, focusing specifically on overcollateralization (OC) tests.

OC tests are used throughout a CLO to ensure that each tranche is protected, but further down the stack on the single-B's they become a useful guide for which investors hold the balance of power.

Managers, desperate to get 3rd party equity involved, are trying to loosen the terms and get rid of OC tests on the single-B tranches but mezz investors are holding firm, for now.