Despite their strong fundamental performance, CLOs continue to trade at wider spreads than similarly rated corporate bonds or securitised products, particularly in Europe. We believe that complexity, “guilt by association” to CDOs or their hybrid ABS/corporate nature may explain this persistent yield premium but regulatory and policy decisions are also relevant. In this note we […]

CLOs have received positive attention in the press1 of late following the release of the Bank of England’s latest Financial Stability Report2 in July. As highlighted in the Bank of England’s report, current CLO structures (“CLO 2.0”, issued from 2011 onwards) are much more robust compared to pre-crisis structures (“CLO 1.0”, issued before 2009). As […]

THE VALUE OF INTEREST RATE FLOORS IN EUROPEAN CLOs While we typically think of CLO debt as a floating-rate investment paying a margin over Euribor, since 2015 most European CLOs have included a Euribor floor set at zero. They have thus effectively paid fixed rates of interest since 2015 when 3m Euribor dropped into negative […]

All CLO managers produce lengthy pitch books presenting the firm’s skill sets and geographic spread, outlining their investment philosophy, and listing the names of their key personnel from chief investment officers down to analysts and traders. Some, such as Barings, BlackRock and Oaktree, like to include the biographies of some key professionals. In these documents […]