EBA’s Clarification of CLO Originator Eligibility

Key Highlights:

The European Banking Authority (EBA) has ruled out the use of conditional sales agreements (CSA) for Originator status — a change impacting 56% of European CLOs issued in 2024–Q1 2025. Our analysis shows which CLO transactions are likely to be impacted. Managers and Originators will probably have to make changes in the way assets are transferred to remain eligible with the EU/UK regulation (EUSR). For the purpose of highlighting those transactions, we reviewed a sample of 289 recent CLO transactions.

Our Findings:

• 155 Originator transactions are currently relying on Conditional Sale Agreements (CSA).
• 111 Originator transactions are currently relying on Forward Purchase Arrangements (FSA).
• 7 Originator transactions require clarification for compliance as they are using both CSA and FSA.
• 16 Sponsor transactions are eligible.
• 75 Originator transactions in 2025 and 80 Originator transactions in 2024 are currently relying on CSA.

Commentary:

The European Banking Authority (EBA) has recently issued a clarification on the definition of “Originator” for CLOs, creating significant uncertainty for CLO market participants. In its latest Q&A, the EBA explicitly ruled out the use of conditional sales agreements (CSA) as a valid mechanism for originator status. This comes as a surprise to many market participants, since CSAs are widely used: our analysis of European CLOs issued in 2024 through Q1 2025 shows that 56% of Originator transactions rely on CSA.

The EBA’s concern lies in the definition of a “true purchase.” Under CSAs, the transfer of assets only becomes effective upon default, which casts doubt on whether a genuine purchase has taken place. By contrast, forward sales (FSAs) agreements remain acceptable.

This clarification adds to the regulatory uncertainty, following the recent Joint Committee proposal to tighten the “sole purpose test” by linking it to a predominant source of revenues. Such a change could require originators to divulge this information, a shift that would introduce additional transparency but also reporting burdens.

The question for managers and investors is clear: what adjustments will be required at the manager and/or risk retention holder level, and what disclosures will investors demand going forward? Our study of the Offering Circulars sheds light on these dynamics and maps transactions likely to be most affected.