Insights

CLOs are a relatively recent innovation, but the investment principles that underpin them have developed over generations. This article traces the ideas, and the thinkers behind them, that continue to shape CLO portfolio management today.

Introduction CLOs are floating rate products, which means that both assets and liabilities are linked to prevailing market rates (benchmark interest rates). This is one of the matching principles that underpins the CLO model (see CLO Insights – CLOs for All Seasons) and serves to reduce duration risk. This feature also has an incidental role […]

Most collateralised loan obligation (CLO) metrics, including Portfolio Profile Tests, Collateral Quality Tests and CLO Coverage Tests, are calculated using the traded balance. Cash flow available to pay noteholders, however, depends solely on the settled balance: the principal and interest that have actually been received. Managing the gap between the two is a core part […]

Building a CLO platform takes more than capital and infrastructure. It requires deep credit expertise and an investment proposition credible enough to withstand institutional due diligence across multiple market cycles.

CLO Documentation can seem daunting at first, but every document exists for a reason. In our latest CLO Insights Series, produced in association with Weil, Gotshal & Manges (London) LLP, we walk through the full suite of documents that govern a CLO: what they contain, how they fit together, and why they matter to investors.

Risk Retention, sometimes referred to as ‘skin in the game’, is an important requirement serving to align the interests of investors and other parties in a CLO transaction.  In our latest CLO Insights Series, we take a deep dive into the Risk Retention Rules, examining how they apply under both EU and UK securitisation regulations […]

How do CLO managers balance the complexity of over 100 leveraged loans while protecting investor value?  In our latest CLO Insights Series, we examine the importance of portfolio optimisation throughout a CLO's lifecycle, from the initial ramp-up through active management and beyond the reinvestment period.  The article explores the constraints CLO managers work within, from eligibility criteria to collateral quality tests to coverage ratios, and how these protect noteholders while giving managers scope to enhance portfolio resilience.

Who’s who in CLOs? Issuing a CLO involves multi-disciplinary teams of specialists all working together. The number of parties involved in the creation of a CLO can be bewildering. In our latest CLO Insights Series, we break down the roles and responsibilities of each participant in a typical CLO structure. From the Collateral Manager and […]

How do CLO managers balance risk and return while maintaining portfolio quality standards? In the latest article in our CLO Insights Series, produced in association with Weil, Gotshal & Manges (London) LLP, we provide an analysis of Collateral Quality Tests and the matrices that guide CLO portfolio management. The piece breaks down five essential quality […]

What is a CLO waterfall and what does it do? The “waterfall” is one of the more colourful phrases used by the CLO community. Formally called “Priorities of Payments”, this mechanism controls how interest and principal proceeds flow from CLO assets to investors. Our latest CLO Insights breaks down exactly how these waterfalls operate, and […]

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.

The Standard of Care is central to CLO management. In the second edition of our CLO Insights Series, we examine its practical impact on managers’ responsibilities. The principle is straightforward but important: CLO Managers must manage capital with the same level of skill and attention they apply to comparable assets across their business. Reasonable care […]