“We’re seeing some deals that have a 5% or even 10% bond bucket, but in other deals there has been some push-back because the debt investors have not due-diligenced the manager’s investment team with respect to high yield bonds,” says Allen & Overy partner Nick Robinson. Managers may have to go the LSE route if a US bank subject to Volcker restrictions has an equity position in a CLO. This is rare, but market participants say there are examples of such scenarios. In addition to bond buckets, managers and equity investors across the board are pushing for greater flexibility to add extra capital into their deals to participate in workouts, especially in light of increased defaults resulting from the coronavirus pandemic. “There’s more flexibility on the deal acquiring workout securities in a restructuring if the CLO does not rely on the LSE,” says Paul Hastings partner Eugene Ferrer. “If the deal relies on the LSE, then it’s less flexible because the collateral manager must determine that acquiring workout securities will be permitted by the LSE.”