Opinion

May 2020 | Issue 223

Thomas Majewski,

Founder & managing partner

Eagle Point Credit Management

Opinion

CLOs

The CMBS talf proposal is simple and effective. A similar approach for CLOs would be welcomed

Randy Schwimmer,

Head of capital markets and origination

Churchill Asset Management

Opinion direct lending

Liquidity is king. A company with a sound long-term value proposition may not last the next few weeks

Where are the gloating I-told-you so columnists who claimed CLOs would bring global destruction?

Vinnie Ingato,

Head of leveraged finance | Zais Group

Opinion CLOs

A lot of CLO portfolios look similar and I’ve never been one to follow the herd

Past returns

Death by triple Cs? A step too far

15 months ago in

Creditflux

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.

THEY SAID IT

“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.

CLOs at a glance

The CMBS talf proposal is simple and effective. A similar approach for CLOs would be welcomed

Browse more Creditflux newsletters

Global credit funds & CLO's

May 2020

| Issue 223

Published in London & New York.

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