CLO structures incorporate mechanisms designed to protect investors across varying credit environments. Historical performance data from Standard & Poor’s confirms negligible defaults across multiple stress periods, from the 2008-09 crisis through the recent inflation cycle.
In the latest article in our CLO Insights Series, produced in association with Weil, Gotshal & Manges (London) LLP, we provide an analysis of:
- Matching principles: How CLOs are designed to limit interest rate, currency and maturity mis-matches.
- Portfolio construction: Asset selection process and the role of eligibility criteria, collateral quality tests and concentration limits.
- Active Management: The benefits of a dynamic approach to portfolio management.
- Risk retention: Regulatory frameworks requiring 5% economic interest alignment.
- Protections: Tools available to CLO managers for managing distressed and defaulted assets.
- Amortisation: Investors are repaid from amortisation of the underlying investments
- Looking forward: What to look out for in the future.
Current market conditions, including increased uncertainty around default trajectories, spread compression and asset availability, underscore the relevance of these structural protections.
Read the analysis below.
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