The American Dream - CLOs baby
Delete
Delete
Deletedffffffffffffffffffffffffffffgfggggggyyyyyyyy
Delete Delete Delete Delete Delete
Delete
Delete
Deletedffffffffffffffffffffffffffffgfggggggyyyyyyyy
Delete Delete Delete Delete Delete
| +374 | Which Offer to Accept: UBS Analyst Role or Part Time Cashier at the Local Taco Bell | 44 | 6h |
| +291 | Roku-Fox Deal - UBS Misses Out on yet another deals after years chasing this deal | 31 | 5h |
| +272 | TPH V.S. Mizuho [HOU] | 33 | 1h |
| +270 | AI is insane | 38 | 2h |
| +268 | I Snuck Into UBS Office And Took A Shit On The Floor | 26 | 9h |
| +220 | Best Power/Renewables/Energy Teams? | 35 | 3h |
| +202 | Useless associates | 36 | 5h |
| +184 | Differences in Restructuring Teams? | 33 | 5h |
| +181 | Centerview HC group falling off? | 28 | 5h |
| +181 | Actual EB List | 26 | 2h |
Career Resources
Congrats!
Thank you!
Big ups bro
🤝
Congrats bro, very hot market right now
Thanks brother
So is a clo a blind grab bag of high leverage covenant lite loans to shit cos?
Basically just buying a portfolio of say 500mm non-IG loans (floating rate so pays SOFR + a spread) which is actively managed and financing it with about 450mm (90%) of debt. Majority of debt financing (also floating rate) is AAA but there are several tranches usually down to BB or sometimes a B tranche, lower rated tranches are more at risk of not being fully repaid but they also get higher levels of return. The other 50mm (10%) comes from an equity investor who has the benefit of the excess spread between what the loan assets pay and what the debt financing costs. e.g. your loan assets pay SOFR + 325 minus the WACC of your debt financing is SOFR + 200, therefore you earn +125bps of excess spread across the whole 500mm of collateral, plus you earn SOFR rate on your 50mm equity investment. Math works out that equity investor gets SOFR + (125bps * 10) = SOFR + 12.5% for taking this equity tranche.
This doesn’t account for any defaults which will reduce this return as the equity tranche absorbs all the losses first before it begins to hit the debt tranches. Also loans often prepay early so managers reinvest which can change returns too but yeah that’s a simple way to think about it.
Definitely not an expert yet but happy to answer any other questions
And yeah broadly syndicated loan market is very much covenant lite now. CLOs buy about 2/3 of total BSL market.
One other thought on investing in CLO debt, I found this statistic online online: “CLO BB notes exhibit a 0.22% annualized default rate, which is significantly lower than the 1.45% annualized default rate for Corporate BB notes”. Especially considering a CLO BB gets you SOFR + 500-600 whereas a BB loan you’re only getting like SOFR + 200-300 maybe, so yeah higher return and lower risk of taking a loss really shows CLO BB on a risk-adjusted returns basis as a no-brainer to me
Ipsum perspiciatis repudiandae distinctio omnis enim quasi. Ullam labore nihil quod dolorem et.
Adipisci quo et veniam. Sit unde sint dolores quaerat voluptatibus. Molestiae alias beatae ut nam aut porro.
Dolor dolor odio consequuntur ut dignissimos vel quis. Non eius iste earum. Ut qui excepturi omnis ipsum eos est aliquid. Recusandae eum occaecati est occaecati ad quidem suscipit at.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...