CLOs may be looking for buying opportunities in softening loan market

By Sara Rosenberg

New York, March 16 – Recently priced CLOs ramping up to full investment could be looking at the current secondary loan market as an opportunity for buying, according to a fund manager.

“A lot of loans quoted down three to five points to start [today],” the manager said. “Trading tends to improve later in the day after sellers don’t panic at low quotes. CLO managers [are] buying but trying to extract best prices from sellers looking for liquidity. This is great for recently priced CLOs.”

All of the recent changes announced to rating outlooks and recent rating downgrades due to the impact of the coronavirus on companies may not have a major impact on CLOs.

“Their weighted average rating factors will all go down together. It was going to happen eventually anyway. In the comparison game, not much change. But in the comfort game, somewhat less. Remember, CCCs got over 15% of CLOs in the global financial crisis and none of them defaulted at the AAA or AA level and almost none of them defaulted on anything. This should not get close to that bad,” the fund manager added.

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