April 2020 | Issue 222
Past returns
A new secondary market for CLOs
Ten years ago we reported on the recovery of CLO triple As in the secondary market. Investment banks led by Bank of America, Citi and Goldman Sachs were making markets in these bonds and this was forcing brokers to take a step back.

Senior CLO tranches had “tightened’”to 225 basis points, we wrote, with bid-ask spreads “narrowing to 25bp”.

2.0 CLO triple A spreads have settled between 100-150bp over the past decade. But last month, the spread of covid-19 caused credit to widen and first-pay CLOs are now valued at 400-600bp. That’s back to 2008 levels.
Points up front
Despite the fees, European SME CLOs are the future
Producing the first post-crisis securitisation of small and mid-sized European loans was a monumental effort for Be‑Spoke Capital.

The CLO manager’s founder Lars Schmidt-Ott took part in a frank discussion on how Alhambra SME Funding 2019-1 was put together (see page 10) at Creditflux’s direct lending event.

On a panel he pointed out that as a first mover with an off-the-run structure, financing costs for the deal were always going to be high. But securitisation is the only way to replace ECB funding of SMEs.

“If we don’t get this going, our kids will find it difficult to get jobs,” he said, highlighting the gravity of the situation.

Schmidt-Ott went on to poke fun at panellist Carlos Silva (DBRS Morningstar) for his high fees.

“That’s what I keep telling Carlos, that I’m paying them [rating agencies] more fees so that I can pay more [in financing] — but he doesn’t listen,” grinned Schmidt-Ott with a glance over at Silva.
Schmidt-Ott: doing it for the kids
Introducing CHOs — finance for farmers
Bancorpsouth Bank, based in Tupelo in Mississippi, has issued loans to a farm using horses as collateral, according to various media reports, with Data Driven Investor dubbing these collateralised horse obligations.

Is this the top of the market? Neigh, we’re certain CHOs are financially stable!
“Start writing the story about banks making margin calls to buyers of CLOs using repo!”
A reader comments on our 25 March report “US fund managers put on leveraged CLO triple A trade with a view to 13% returns”, pointing out that banks were pulling loan TRS lines, but still had the appetite to support leveraged CLO trades.
Global credit funds & CLO's
April 2020
| Issue 222
Published in London & New York.
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