CDOs/CLOs

Marketplace lenders may be able to teach banks a thing or two about speeding up loan origination, but when it comes to securitization, they could use a few pointers themselves.

The ranks of CLO investors may have thinned this year amid broader bond market turmoil, but it can still be difficult to put money to work with the best managers.

Speaking at IMN’s 5th annual conference on leveraged loans and collateralized loan obligations, LSTA executive Meredith Coffey and SFIG executive director Richard Johns each gave sobering assessments of the inevitable, and possibly debilitating, arrival of new capital ratio and risk retention standards to CLOs and other ABS deals.

Some 69% of collateralized loan obligations completed so far comply with impending risk retention rules, according to Meredith Coffey, research director at the Loan Syndications and Trading Association..

Despite a recent pickup in new issuance of both collateratlized loan obligations and the leveraged loans used as collateral, many participants at an industry conference see more trouble ahead.

There’s a real downside to extremely low or even negative interest rates. Existing CLOs may not earn enough from their euro-denominated assets to pay the interest on the notes they issue.

Deloitte & Touche recently named two co-leads for the CLO services unit of its securitization practice, Hillel Caplan and Lynda Lazzari.

Prices of loans held by CLOs recovered again in April, giving managers some more breathing room. But funding costs, rising interest rates and credit deterioration remain a challenge.

Despite the deterioration in their CLO holdings, BDCs appear to be maintaining their dividends and appear to be in no particular hurry to unload holdings.

One of the biggest challenges in putting new CLO deals together has been the decline in the number of buyers of CLO debt. Justin Plouffe, managing director of U.S. and European CLOs at The Carlyle Group, discusses the means to which managers must adapt to market direction.