Question your assumptions
Valuing CLO paper is complicated, and loan prepayments are one of the trickiest parts. When pricing a new issue CLO, the market generally assumes that 15-20% of loans will prepay their principal annually. This prepayment rate is important because it essentially determines the pace at which a CLO’s rated debt is paid off after the reinvestment period, when the CLO pays down its own principal.

Fund performance
Good month for CLO funds sees six in top 10 as Axiom sets pace

Rope-a-dope brings knock-out returns
Post-pandemic US and European CLOs delivered mid-teen equity returns in 2022, despite a barrage of weak macroeconomic news and what could have been a heavyweight Libor mismatch  

I’ll see your 2020 and raise you 2021
Discounted loans, Libor floors and bond flexibility helped make 2021 an even better year for CLO returns than 2020, as US CLOs distributed 15.54% and European CLOs paid 13.93% annualised

CLO managers show respect to their elders
Alongside lucrative new issues, managers also make time for refinancing and resetting old deals. Our data shows that, in 2021, mid-sized firms were the most effective at this balancing act

Refi deluge casts shadow on b-wics

Still plenty more fish in the triple C

At least 2020 wasn’t dreadful for CLOs
Last year’s downturn was another in which CLOs survived and in many cases thrived as active management and Libor floors helped managers deliver 13%-plus returns to equity

Managers weigh up matters of principal
CLO managers that were able to avoid OC traps made double-digit equity distributions in Q2, despite the headwinds. But these firms tended not to be among those that built the most par

Europe’s newcomers find ways to stand out
Last year’s new European CLO managers needed to provide something different for investors. In general, they’ve succeeded, with Capital Four having one of the smallest overlap figures in our data

Credit pickers need luck to avoid OC trap
We know what you’re thinking: is my CLO failing its OC test? The truth is, in all this volatility, it can be hard to keep track, unless your deal has high quality liquid loans

 

US pensions look beyond equities
US pension funds dramatically lowered their allocations to equity in the decade ending in 2016 as they diversified into illiquid and alternative assets. By Grace Jennings-Edquist

Managers pick spots on CLO curve
As refi volumes slowed through 2017, the term curve for CLOs steepened, leading managers to vary their deal tenors as they sought to hit the evolving sweet spot.

Investors prefer direct lending to CLOs
For the first time in the history of Creditflux’s credit allocator survey, investors have voted direct lending the best investment in credit. CLOs came joint second. By Michelle D’souza

Pharmaceuticals: Pass the scalpel for ailing Valeant
Struggling drugmaker Valeant needs more than just expensive medicine to survive. It needs rapid surgery.

Midstream energy: Building simpler pipelines
The retreat by midstream US energy companies from partnership structures should be good for credit investors

Indian banks: Bond holders face bumpy ride
India's sickly state-owned banks – which are widely owned by international credit investors – could soon be downgraded to junk

Managers launched since 2000 rise in credit hedge fund ranking
Oaktree continues to dominate the ranks of the largest credit hedge fund managers but firms launched this century have seen their share of assets rise

Giant takes sharp turn towards CLOs
It is one of the biggest banks, but BNP Paribas moved nimbly after the crisis to build on its position as a leader in credit derivatives by adding a CLO arranging business

Credit default swaps stop fire sales
Companies with credit default swaps have more liquid bonds and tighter spreads than those that don’t because investors can hold their bonds after a downgrade

How to value a coco
Converting default risk into conversion risk provides a method for valuing contingent convertibles, according to Patrick Cheridito and Zhikai Xu  

How end investors see credit
Pension funds, sovereign wealth funds and endowments are important investors in credit. But how do they choose a manager? And what kind of credit do they like? By Mike Peterson

CLOs ready to call for refinancing
CLO 2.0s are starting to exit their non-call periods in large numbers. A modest move in spreads would trigger a wave of refinancing and repricing

Fine-tuning the momentum signal
Daniel Haesen, Patrick Houweling and Jeroen van Zundert describe an approach that slashes volatility and improves returns in momentum strategies for corporate bonds

European CLOs take on the wall
Many European CLOs will exit their reinvestment periods within a year and will be vulnerable to rising default rates. Peter Melichar looks at the likelihood of this leading to tranche losses