WHAT WILL CLO STRUCTURES LOOK-LIKE IN A POST-COVID ERA?

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Introduction

Collateralised loan obligation (CLO) structures will continue to reflect CLO managers’ search for flexibility in a difficult market, but deals will not fundamentally deviate from the existing CLO 2.0 template. Active management, structural protections and refinancing have aided the resilience of collateralised loan obligations amid a challenging period for structured finance.

  • Existing notes will continue to perform well, despite worsening credit quality and rising collateral defaults.
  • Senior and mezzanine notes will maintain their performance due to availability and levels of credit enhancement.
  • As speculative-grade defaults rise and recovery rates decline, some collateral quality tests start to come under pressure, meaning that managers’ ability and skills become more important.
  • Such differentiation will be observable in the future CLO performance as was the case during the global financial crisis.

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WHAT WILL CLO STRUCTURES LOOK-LIKE IN A POST-COVID ERA?

11 Aug 2021

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