CLOs

Looking to insurers for growth, the asset managers seek NAIC look-through to lower risk-based capital.

That's pushed secondary leveraged loan prices near highs not seen in months as investors flush with cash seek out supply, leading borrowers to stream into both loan and junk bond markets.

The notice is a precursor to a reset deal, a type of refinancing that can extend the life of CLOs for years.

Junior tranches are at the heart of the debate around whether the capital that insurers currently hold against CLOs is sufficient, and the NAIC may soon impose stiffer risk-based capital requirements.

Resetting allows CLOs to essentially cut the costs at which they borrow, leaving more money for holders of the riskiest and highest-returning part of the structure, the equity portion, after other note holders have been paid.

Partners in ABS practice also discuss how CLOs face final bridge to cross as Libor transition approaches the finish line.

CLO spreads should tighten toward year-end, easing arbitrage challenges. Meanwhile investors will be challenged to calibrate the recovery rate, says Pratik Gupta.

One case found that simply defining the investment in the new debt as an allowable transaction was helpful, but new indenture language to facilitate participation provides CLOs with little benefit.

Direct lenders are trying to get their hands on consumer loans, cutting into banks' business and taking advantage of the sometimes volatile market for asset-backed debt.

The pool will have an average senior overcollateralization cushion of 10.33%. Overall, however, the portfolio has a lower WA spread and lower available excess spread, which it says indicates a weaker underlying portfolio.