| | | re "Trouble is afoot down the CLO credit spectrum. Yesterday, Moody’s added 241 CLO securities to its watchlist for potential downgrade, joining 859 such tranches which have been under review since April. Together, the watch-listed securities now account for roughly 25% of all outstanding CLO notes, and, while none of those tranches is rated triple-A, eight are rated double-A and 51 are rated at single-A.
CLOs are the new CDOs...
The Looming Bank Collapse: The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.
theatlantic.com
After the housing crisis, subprime CDOs naturally fell out of favor. Demand shifted to a similar—and similarly risky—instrument, one that even has a similar name: the CLO, or collateralized loan obligation. A CLO walks and talks like a CDO, but in place of loans made to home buyers are loans made to businesses—specifically, troubled businesses. CLOs bundle together so-called leveraged loans, the subprime mortgages of the corporate world. These are loans made to companies that have maxed out their borrowing and can no longer sell bonds directly to investors or qualify for a traditional bank loan. There are more than $1 trillion worth of leveraged loans currently outstanding. The majority are held in CLOs. |
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