European collateralized loan obligations (CLOs) issued before the financial crisis are nearing the end of their reinvestment periods. Yet the maturities of the loans that serve as collateral for these deals continue to shift further out into the future, in part because borrowers are renegotiating the terms.
This creates potential risks for CLO investors, according to Standard & Poor’s. In a report published May 14, the rating agency said CLO noteholders may have to wait longer to get their principal back. They may also have to accept lower returns if CLO managers opt to sell loans in the secondary market in order to repay the note principal.