So what happened to #CLOs​ during Covid? When the world stopped last March, as our own CLO manager, Kelli Marti, told us, “everyone looked first to their health of their portfolios. The key was preserving the value of the underlying collateral. 

“Two things mattered,” she said, “triple-C exposure and OC cushions. If triple-Cs are too high, fund flows may be redirected, suspending payments to the lower debt and equity tranches.”   

Before Covid, 5% of the LSTA Leveraged Loan index was rated triple-C. Adding B- assets gets you to a combined 25%, up from 15% two years earlier...

“Anytime loan market technicals shift, there’s always a view that CLOs are the end of Western civilization as we know it.”  

That’s what a top #CLO​ manager told us about his experience over several decades. Regardless of actual performance, CLO’s regularly get hauled out by the media for reckless behavior associated with“risky loans.”  

Back in 2014 we published a white paper – “Why CLOs Matter” – that showed how CLOs have adapted to changing market conditions over their history and had a remarkable track record over many business cycles....

We wrap our special 2021 outlook with #privatecredit​.  

Its value proposition was fully supported last year, coming through the pandemic mostly unscathed. But with conditions becoming more issuer-friendly, how will private credit terms be impacted?  

When liquid loan yields contract, illiquid loan yields tend to follow. But they carry at least a 100 bp premium, and at least 200 bps vs. high yield bonds...

We continue our special series on The Great Reception, a year that’s welcoming all investors. This week we look at the capital markets: funds flow, asset behavior and deal quality.   

With each passing day, the light at the end of the COVID tunnel grows brighter. That newfound optimism has put upward pressure on interest rates.   

As our Chart of the Week shows, the ten-year Treasury is up 70 bps, while investors anticipate an earlier Fed rate hike, now mid-2024.  

Higher rates have chilled high-yield bond funds. There have been $4 billion of redemptions six of the past seven weeks, per S&P LCD. Bond volume is also off, from $60 billion last June to $24 billion so far this month....

What have you missed most over the past few months? Well, if you said “Grape-Nuts” we feel your pain. Our beloved cereal has gone missing from supermarket shelves across the US.  

First produced in 1897 Grape-Nuts accompanied Sir Admiral Byrd to Antarctica and Sir Edmund Hillary to Mount Everest. But don’t worry. They’ll be back. The cereal, that is.   

In the meantime Post Foods is running a contest. Ten lucky winners will receive a year’s free Grape-Nuts supply. Everyone else gets a coupon.   

Credit investors, meanwhile, are hoping for a year’s healthy supply of deals. And it looks like both the economy and markets are cooperating...

We conclude our special series, “Five Biggest #PrivateCapital​ Surprises of 2020,” with:    

Surprise #5: The M&A Big Bang  

Last July published a white paper on COVID-19 and M&A Activity. It was called “COVID-19 and M&A Activity”. Besides logistical challenges, there were worries about second and third infection waves. “We’re expecting a light second half,” one banker told us.   

Ok, so that didn’t happen....

We continue our special series with the fourth of our “Five Biggest #PrivateCapital​ Surprises of 2020:”  

Surprise #4: Which Industries Mattered?  

For experienced credit managers, diversity is a key investing principle. The question coming into last March’s downturn was, have we made the right decisions on industries to lean into and out of?  

Generalists avoid cyclicals such as energy, retail, and high-end consumer. Unlike the Great Recession, though, the COVID cycle impacted businesses where consumers had to leave their homes...

We continue our special series with the third of our “Five Biggest #PrivateCapital​ Surprises of 2020:” 

Surprise #3: Where Are the Distressed Loans?  

Last April the CEO of a large asset manager said the volume of potential distressed credit investments could be $1 trillion. COVID, he said,  presented “a massive opportunity to deploy capital at a critical time for the U.S. economy.”  

Nine months later we’re still waiting for that opportunity. The speed of the Fed’s rescue helped larger corporate borrowers in tough sectors like airlines and cruise lines. Private equity jumped in quickly along with their portfolio lenders to provide capital and covenant flexibility to middle market companies...

We continue our special series with the second of our “Five Biggest #PrivateCapital Surprises of 2020:”

Surprise #2: Non-Correlated Trends – Infections, Markets, and the Economy

At their lowest moments in the Global Financial Crisis and the Global Biological Crisis, financial markets swooned in synch as investors found no safe havens. Bad news sunk everything. To paraphrase Tolstoy, happy markets are happy in different ways; unhappy markets are alike...

Because last year was so unique, to really capture its themes adequately we’re kick off our special series: “The Five Biggest #PrivateCapital Surprises of 2020.”  

Surprise #1: The Market Snap-Back  

Hard to remember now, but by last March 23rd the Dow plunged almost 11,000 points in less than six weeks to 18,592. Today it sits at almost 31,000. No one knew at the time, but the market had bottomed out. If you went to cash, you lost...