Key Takeaways
- • Dechert has acted as lead counsel for Barings and Ares Management on four consecutive market-first European private credit CLO transactions since December 2024, progressing from a static inaugural structure to reinvesting and multicurrency models.
- • The Barings Euro Middle Market 2025-1 private credit CLO won an Impact Deal Award in Securitisation and Structured Finance at the IFLR Europe Awards 2026.
- • Multicurrency liabilities in euros and sterling create a natural currency hedge, removing the cost and complexity of perfect asset swaps and broadening the eligible loan pool across European jurisdictions.
- • Dechert partner Aaron Scott says the frameworks developed could serve as a blueprint for further European private credit CLO issuance as more managers enter the market.
- • Hybrid CLOs combining private credit assets with broadly syndicated loans (BSLs) are emerging as an entry point for additional managers, with future developments expected in parallel pure and hybrid structures, new currency pairings such as US dollars and euros, and greater use of warehouses.
Summary
Dechert has acted as lead counsel for Barings and Ares Management on four consecutive market-first European private credit collateralised loan obligation (CLO) transactions since December 2024, according to IFLR. The deals moved from an inaugural static structure with no reinvestment period to reinvesting and multicurrency models. Aaron Scott, CLO partner at Dechert, was part of the teams advising on the transactions, including the Barings Euro Middle Market 2025-1 private credit CLO, which won an Impact Deal Award in Securitisation and Structured Finance at the IFLR Europe Awards 2026. Scott said the resulting frameworks could provide a blueprint for further European issuance as more managers enter the market.
Scott attributes the viability of European private credit CLOs to the scale and maturity the asset class has reached, with managers holding larger, more established portfolios. Investor comfort has also grown, supported by the development of the US private credit CLO market. Early obstacles included assembling a portfolio with sufficient diversification and credit quality to meet rating agency requirements, complicated by multiple currencies and jurisdictions and a smaller market than the US. Uncertainty also surrounded rating agencies' credit estimates for underlying loans and untested European investor demand. Scott said that with several transactions now launched, managers have greater visibility on rating agency assessments and investor appetite.
The multicurrency structure addresses the diversification challenge. Traditional CLOs are typically single-currency, and holding non-matching loans requires swaps that add cost and complexity. By issuing liabilities in both euros and sterling, the vehicles match euro proceeds to euro-denominated assets and sterling proceeds to sterling-denominated assets, materially widening the eligible pool across European jurisdictions. Scott noted that all deals so far have included a broadly syndicated loan bucket to enhance diversity, and that hybrid transactions combining private credit assets and BSLs now offer a more flexible route to building portfolios.
Scott acknowledged that 2026 has brought periods of turbulence and greater scrutiny of private credit, particularly around credit quality, transparency and liquidity in certain fund structures, but said Dechert remains positive on the long-term growth of European private credit and CLO issuance. Looking ahead, Scott identified three potential areas of development: parallel growth of pure private credit and hybrid CLOs, additional currency combinations such as US dollars and euros, and greater use of private credit CLO warehouses to build portfolios for CLO takeout. Scott said these innovations are expected to bring more managers to market.
Scott attributes the viability of European private credit CLOs to the scale and maturity the asset class has reached, with managers holding larger, more established portfolios. Investor comfort has also grown, supported by the development of the US private credit CLO market. Early obstacles included assembling a portfolio with sufficient diversification and credit quality to meet rating agency requirements, complicated by multiple currencies and jurisdictions and a smaller market than the US. Uncertainty also surrounded rating agencies' credit estimates for underlying loans and untested European investor demand. Scott said that with several transactions now launched, managers have greater visibility on rating agency assessments and investor appetite.
The multicurrency structure addresses the diversification challenge. Traditional CLOs are typically single-currency, and holding non-matching loans requires swaps that add cost and complexity. By issuing liabilities in both euros and sterling, the vehicles match euro proceeds to euro-denominated assets and sterling proceeds to sterling-denominated assets, materially widening the eligible pool across European jurisdictions. Scott noted that all deals so far have included a broadly syndicated loan bucket to enhance diversity, and that hybrid transactions combining private credit assets and BSLs now offer a more flexible route to building portfolios.
Scott acknowledged that 2026 has brought periods of turbulence and greater scrutiny of private credit, particularly around credit quality, transparency and liquidity in certain fund structures, but said Dechert remains positive on the long-term growth of European private credit and CLO issuance. Looking ahead, Scott identified three potential areas of development: parallel growth of pure private credit and hybrid CLOs, additional currency combinations such as US dollars and euros, and greater use of private credit CLO warehouses to build portfolios for CLO takeout. Scott said these innovations are expected to bring more managers to market.
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