CDOs/CLOs

Issuance is strong and defaults remain low; yet CLO market participants are concerned about heavy debt loads of the companies they invest in, as well as the lack of investor protections.

Sean Solis has been a partner at Dechert since 2014, advising collateralized loan obligation managers and arrangers through the hoops on U.S. and European risk-retention regulations.

A continued "oversupply" of CLO deals, along with expectations for new debut or returning managers in the absence of risk-retention requirements, is expected to keep activity flowing.

The closed-end fund, a major investor in CLO equity. directed resets of four deals that it controls in the first quarter; this helped end a yearlong slide in its weighted average portfolio yield.

The commercial real estate lender, which is controlled by Canadian and Singapore sovereign wealth funds, included some unusual features in the deal, such as a two-year revolving period.

According to Morgan Stanley, seven of 15 new European CLOs in the pipeline are debut or re-entry deals involving U.S. asset managers.

The London interbank offered rate has its faults, but at least it compensates for counterparty risk; not so the benchmark being touted as a replacement.

A federal appeals court overturned part of the 2010 law’s risk retention rule earlier this year. The legal battle highlights mistakes to be avoided during the next reform fight.

The average AAA note coupon of 103 basis points above Libor widened from 98.4 in March, which had been the tightest CLO spread level in approximately five years.

“We’re comforted by the fact our position in the market is so strong, and our ability to gain [loan] allocation is quite important," co-CEO Kewsong Lee says.