Currently, few CLOs allow for investments into high yield, and those that do generally limit the exposure to 5%-10%. In 2020, the Volcker Rule was further amended, and high yield bonds are now allowed back into CLOs. The current vintage, CLO 3.0, began in 2014 and aimed to further reduce risk by eliminating high yield bonds and adhering to the Volcker Rule and other new regulations. The next vintage, CLO 2.0, began in 2010 and changed in response to the financial crisis by strengthening credit support and shortening the period in which loan interest and proceeds could be reinvested into additional loans. Commonly known as “CLO 1.0,” this vintage included some high yield bonds, as well as loans, and were the standard CLO structure until the financial crisis struck in 2008. The first vintage of “modern” CLOs – which focused on generating income via cash flows – was issued starting in the mid- to late-1990s.
#PRINCIPAL WRITEDOWN SERIES#
Each CLO is structured as a series of tranches that are interest-paying bonds, along with a small portion of equity.ĬLOs originated in the late 1980s, similar to other types of securitizations, as a way for banks to package leveraged loans together to provide investors with an investment vehicle with varied degrees of risk and return to best suit their investment objectives. The assets are typically senior secured loans, which benefit from priority of payment over other claimants in the event of an insolvency. Put simply, a CLO is a portfolio of predominantly leveraged loans that is securitized and managed as a fund. In spite of this, we believe CLOs are attractive investments and well worth the time and effort required to understand them. But for many investors, the basics of how they work, the benefits they can provide, and the risks they pose are wrapped in complication, which is why they’re also often misconstrued by the financial media and some market participants. They have historically offered a compelling combination of above-average yield and potential appreciation. CLOs have been gaining wider prominence in markets in recent years, and it’s no surprise why.
0 kommentar(er)
