CLOs becoming too equity-friendly?

Pic© L.Miguel Bugallo Sanchez

Category: CLOs


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Loosening documentation and a greater proportion of income being distributed to subordinate noteholders have sparked concern that US CLOs are becoming too equity-friendly. Nevertheless, headwinds may be approaching for equity investors as a result of a Libor mismatch.

Respondents to JPMorgan’s Q1 US CLO investor survey suggested that some documentation has become too “equity friendly”, highlighting the growth of features, such as longer reinvestment periods (which are now more commonly five years versus four years) and flexible post-reinvestment language.

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