CLOI - CLOs: Too Good To Be True?

2024-03-20 08:05:00 ET

Summary

• CLOs are backed by a pool of leveraged loans, which are non-investment grade and produce high levels of income that gets distributed to CLO tranche investors.
• Each tranche of a CLO has varying degrees of subordination, which insulates investors from default losses.
• CLOs, in aggregate, experienced a drawdown similar to investment-grade corporate bonds during the COVID selloff.

We discuss three reasons why CLOs have had the most attractive risk-adjusted returns in fixed income over the past decade and look at why active management is essential in mitigating risks. ...

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