TyB
>Thinking about joining the #USArmy and want to know, "What's in it for me?"
Is this a joke?
With woke ass leadership and policies that border on psychotic?
Pretty rhetorical question that
Bets on Risky CLOs Are Paying Off With 20% Gains: Credit Weekly
(Ohh THIS is going to end so poorly and by creating yet another layer with moar leverage the issuers get to off load liability faster but at some point they wonât-later this year-and the buyers will ultimately hold the bag again and because itâs easy money now they donât careâŚ.as Wall St. wins again by creating yer another piece of shit financial âproductâ that pays them off quicker)
Returns on the riskiest portion of collateralized loan obligations are booming, reaching about 20% annualized on both sides of the Atlantic as loan performance improves, debt spreads tighten and payouts grow.
In some cases, a structural quirk thatâs allowed managers to put fresh debt on old deals has also aided returns to the equity slice, the first piece of the structure that takes losses. Money managers that put together CLOs â bonds backed by a group of leveraged loans â are taking advantage of falling fundings costs and issuing more lower-rated bonds, instead of hanging onto them. Many are now selling whatâs known as a âdeferred class F tranche,â tacking it on to an older CLO. The money they get from the sales can reward equity holders with fresh distributions. âManagers are able to flush the sale proceeds straight out to equity, which can lead to bumper returns,â said James Baillie, a structured credit partner at Paul Hastings in London.
The deferred tranches are another example of how issuers are taking advantage of a strong rally in risky debt as fears of a recession recede and pricing recovers after a prolonged rocky period. Since the start of the year, more than a dozen such deals have been issued in Europe from CLO managers including Invesco and Capital Four.
Equity returns have also been helped by a number of CLOs exiting their non-call period, meaning they can be refinanced, restarted or liquidated. The new pricing and extended investment timelines can also free up more cash that can be sent to the equity portion, Baillie added. âIn both approaches youâre moving from a less levered to a more levered position and thatâs giving you in some instances an equity dividend,â he said.
CLO equity returns have been choppy in recent years due to fluctuating arbitrage â or the difference between the yields a manager gets from the loans it buys and the funding costs on the bonds it issues. After falling in 2023, European arbitrage levels have stabilized this year at around 200 basis points, and recently started rising marginally, according to Bloomberg Intelligence.The catch is that these returns might not last.CLO equity investors may see the arbitrage fall again if global central banks begin cutting interest rates this year. An increase in financial distress ~~could~~WILL (FIFY) also erode returns, though it has remained limited for now.
https://news.bloomberglaw.com/bankruptcy-law/bets-on-risky-clos-are-paying-off-with-20-gains-credit-weekly