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Global credit funds & CLO's
July 2020 | Issue 225
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Event Creditflux West
It’s all going to plan
July 2020 | Issue 225
Whether managers are relaxed because they can make up losses later, or are putting more money into their deals, panellists on the Creditflux West webinar weren’t panicking about OC breaches
CLO triple A spreads blew out to 400bp in March and the US Fed cutting rates intra-meeting really messed things up. A lot of hedges blew up, which caused investors to do one thing: sell.
Investors are paying close attention to trading behaviour and this is resulting in a re-racking of the CLO manager tiers as some small firms outperform.
“Sometimes it can make sense to cut your losses”
Andrew Ross, Senior director | Pacific Asset Management
Some CLO managers which are close to breaching an over-collateralisation test will attempt to hang on. They may fail tests if they realise losses, but this can benefit investors if the proceeds are reinvested adequately.
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“I blame the Fed”
Laila Kollmorgen, CLO tranche portfolio manager | PineBridge Investments
“Everyone is eagerly looking out for trustee reports”
Palak Pathak, Senior vice president | TCW Group
US CLOs poll
Where are CLO double Bs pricing in the secondary market?
What proportion of US CLOs will be failing their junior OC test in July?
The Creditflux West webinar had 348 viewers while streaming live 165 votes were cast in the polls.
“For top tier CLO double Bs, it’s almost like covid never happened”
Buo Zhang, Structured products trader and structurer | Symphony Asset Management
Some CLO managers which are close to breaching an over-collateralisation test will attempt to hang on. They may fail tests if they realise losses, but this can benefit investors if the proceeds are reinvested adequately.
Event sponsors
High quality CLO double B debt has rallied to where it was before the sell-off in March. But weaker tranches are playing catch-up.
Managers are being innovative in the way they trade — some will take losses in July knowing they have enough time to make up for these later on.
“Some managers will rip the band-aid off and take some losses in July”
Adnan Zuberi, Global head of CLOs | BNP Paribas
“Some managers have posted more collateral to overcome drawstop events”
Maeve O’Brien, Global Head of CLO and loan servicing | BNY Mellon
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