CDOs/CLOs

There are any number of reasons to fret about America’s recovery from the coronavirus crisis. A repeat financial collapse at the hands of a structured product with a similar sounding acronym isn’t one of them.

The subprime mortgage meltdown turned Pacific Investment Management Co. off the CLO business for a decade. Now the coronavirus crisis is luring it back.

The firm will offload parts of its business including its business development company, Garrison Capital Inc., and other credit vehicles.

Fitch Ratings is evaluating all 59 middle-market collateralized loan obligations it rates for potential downgrades, over concerns of the ability of small-business borrowers to support loan payments under COVID-19 stresses.

Credit deterioration is slowing in broadly syndicated CLOs – but a large percentage of deals are still failing certain performance tests under the weight of underlying asset downgrades and lower payment flows from obligors.

“Since April, the decline in corporate credit has resulted in a significant number of downgrades among the assets underlying some CLOs,” a Moody’s press release stated on Wednesday.

Shut out from many coronavirus relief programs, private equity companies have found a back door at HHS, where they have borrowed at least $1.5 billion.

Business development companies (BDCs) were trending ever healthier prior to the pandemic, but if the economy remains in the deep doldrums it may ultimately be their affiliated asset-management companies that investors should look to for assurance.

A New York judge last week dismissed a claim that a leveraged loan JPMorgan Chase & Co. and other Wall Street banks sold in 2014 could be considered a security and, as such, be subject to the same disclosure requirements as stock and bond offerings.

In a report issued Tuesday, the ratings agency notes that 1,287 companies as of April 28 faced prospects of potential debt and issuer downgrades, impacted by the coronavirus outbreak and a virtual shutdown of the global economy this spring.