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Thursday April 07, 05:38
S&P warns of CLO «overlap» risks
(by Dr.Goldfinger)

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Rating agency Standard and Poors warns the investors of collateralized loan obligations (CLOs), saying they may face risks with the obligations that may contain the same corporate credits.

Some investors buy debt portfolios with more leverage in an attempt to boost returns, but are trapped in specific corporate defaults that they had realized, the agency says.

In its recent report Standard and Poors described the problem of diversity obtained by portfolio managers and CLO investors. “Current conditions in the US loan market are forcing CLO managers to invest repeatedly in the same names. As a result, the question arises as to whether portfolio managers and CLO investors are obtaining enough diversity.”

CLOs must be scrutinized very carefully to avoid such overlaps, the report also said. It has recently surveyed 15 managers who run some 67 US CLOs which resulted in the high incidence of the same corporate names in more than 50% of all obligations.
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