May 2020 | Issue 223
Past returns
Death by triple Cs? A step too far
15 months ago in
we reported that corporate credit downgrades, rather than defaults, were the biggest problem facing CLO portfolio managers. The report — filed under the headline “CLOs can survive defaults, but it could be death by triple Cs” — drew criticism for its negative connotations.

Over the past month, rating agencies have been quick to downgrade loans into triple C territory, with over $30 billion of CLO credits hit in March (although some downgraded loans were already rated triple C). This has led to OC haircuts, which are causing swathes of CLOs to cut off distributions to equity investors.
Points up front
Blame it on capitalism
You know it’s a tough month for returns when a hedge fund manager quotes Lenin and laments that capitalism and globalisation have failed to distribute wealth efficiently.
Writing in his Silver Bullet column in April, Algebris Investments’ head of macro strategies Alberto Gallo cited Lenin’s statement on the Russian revolution that “there are decades when nothing happens; and there are weeks when decades happen”.
Covid-19 has called capitalism into question, Gallo argued, referring readers to The Myth of Capitalism by G Zucman and J Tepper and noting that “median real wages have stagnated over the past 30 years, while corporate profits and wealth inequality soared”.
Let’s hope it’s all sorted by October.
Lenin remains relevant today: he probably wrote ‘there are decades when nothing happens’ after a fortnight under lockdown
Liquidating CLO can’t escape Standard & Poor’s
With over 1,000 CLO tranches on watch across the big three rating agencies, it’s good to see rigorous standards are being maintained and little things like CLO liquidation are not excusing deals from detailed scrutiny.

On 3 April, Standard & Poor’s placed the class ER and F notes from Elevation CLO 2014-3 on negative watch, even though this ArrowMark Partners CLO had sold the bulk of its loan portfolio in February as part of a full redemption.
“The CLO rally had nothing to do with talf”
A US CLO trader says that CLO spreads tightened because credit tightened on the back of the US Fed’s announcement that CLOs would be eligible as part of its talf programme.
Global credit funds & CLO's
May 2020
| Issue 223
Published in London & New York.
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