Entegra, a financial technology firm focused on the CLO market, has rolled out visibility reports for European CLO managers today and will soon make a CLO pricing index available for the European market, Founder Daniel Ezra told Creditflux. 

The firm plans to launch the European CLO pricing benchmark next week, he said. The visibility reports, which ranks CLO managers on how visible they are in the secondary market, and the CLO pricing benchmark were first introduced to the US market this year. After a positive reception, Entegra is rolling these two products out to the smaller European CLO market.

The combination of the new visibility rankings and the pricing benchmark should help CLO managers see how well they priced relative to their peers and also relative to their own history, according to Ezra.

“We found that there was a correlation between how visible you are in the secondary [market] and how well you priced a new issue,” Ezra told Creditflux. “That correlation was about 30% or 33%. It explained around a third of how well you priced your new issue versus the benchmark.”

The manager’s visibility share is based on the average number of CUSIPs observed, according to Ezra. Entegra takes the BWIC bid offer on any given day mapped to a manager and divides it by the total number of CLO BSL CUSIPS visible in the market that day to determine the manager’s visibility share.

“What we discovered was secondary visibility was a driver of CLO liquidity, (and a) driver of new issue pricing…when investors don’t see a manager’s deal trade regularly, they’re just pricing a liquidity premium,” he said. “It’s like if I don’t see you, I’m just not going to value you that much.”

The new European CLO pricing benchmark coming next week will be similar to the benchmark launched earlier this month for the US. Unlike other indexes in the market such as the CLOIE benchmark or the Palmer Square Index, Entegra’s benchmark focuses on new issue CLO prices, according to Ezra.

“Because other benchmarks took new issue and secondary into account…it didn’t really reflect what was actually happening in the new issue space,” he said.

The other benchmarks are good, but they tend to act more as a sentiment index because of all the noise from the secondary market. Entegra’s benchmark would be particularly useful during times of volatility, which can rock secondary markets, he said.

The benchmark should help managers with determining pricing and trying to track improvement, Ezra said. And because the European market is a bit smaller with fewer data points and has less visibility, the benchmark could be even more useful, he added.

“It becomes a bit of a negotiation between the CLO manager and the arranging syndicate bank,” he said. “[For pricing] it becomes this triangulation thing where [they see] this guy priced here, my last deal priced here.”

There are tier one, tier two, and tier three managers in the market, but managers should really aim to make minor improvements rather than expect to jump from one tier to the next overnight, Ezra said. The benchmark can even be broken down into deciles for those that want to track that progress.

“We hope that this gives newer managers, even, the ability to track a benchmark for themselves and find an easier path to issuing more deals or at least an easier path to pricing deals.”