Word from the street: CLOs, distress and the real economy
The March market crash unleashed a perfect storm for CLOs where risk assets sold off, cash flows were impacted and rating agencies were warning of widespread downgrades for levered companies. What is this alchemy in the market that prices appear to reflect cognitive biases that normalcy in the economy will return so soon?
Matthew Andrews, managing director, head of capital markets, CIFC
Moderator: Laurence Parker-Brown, institutional content producer, Conexus Financial
- Typically, CLOs in the United States provide investors with access to the most senior debt in the capital structure that is pegged against the LIBOR to hedge against the risk of rising interest rates.
- Despite a decline after the GFC the total market size for CLOs continues to grow with over 700 bn USD; outstanding volume in August 2020.
- Investors are hoping to leverage the downside protection from the subordination, inflation protection from the floating rate and the diversification from exposure to some of the well-known brands that underpin these assets such as Dell, McAfee and Burger King.
Where is the best value in the market right now?
Have you invested in CLOs in the past two years?
- Emerging market equities
- Sovereign debt
- BB CLO tranches
- Investment grade bonds