While doing a bunch of reading and research this weekend I came across what I though was a pretty decent “primer” on CLOs. While there is nothing that can fully answer all questions on CLOs for many, this at least gives a good flavor. It is from Guggenheim Investments.
This primer would be pertinent to those that own securities issued by Eagle Point Credit, Oxford Lane, Priority Income and OFS Credit–all of which have either term preferreds or baby bonds outstanding.
“Understanding Collateralized Loan Obligations”
I am adding this link to the Education Items page.
7 thoughts on “Collateralized Loan Obligation (CLO) Primer”
I was invited (constantly) to look at these circa 2005-2007. At the time I was buying 5% CMO’s support tranches. Clients got 5% for as long as they lasted. Pre payments were on high side. AAA rated….and broker earned 1%..
Then the desk was like “Look at these CLO’s” They pay 7%. Are AAA and Insured. Oh and by the way they pay 3% commission.
7 vs 5…..3 vs 1….AAA and Insured?? I would have done them but the commission was too high. Spooked me off. The exact same thing that kept me from doing tax shelters in the 80’s.
Oh and most CLO’s took 80% hits.
Excellent read Tim – it removes some of the “mystery”
Gary–I read that over twice then did some other reading and for the first time I figured out how some tranches get 2-3% and others get 20%. As long as the economy is good I didn’t worry about it–but I am highly suspicious of the economy now so wanted to more fully understand CLOs.
Tim – FWIW I have access to a RIA that manages over $100M. He used to manage CLOs. He feels they are very safe at this point in time for many of the same reasons mentioned in the article. I own PRIF-C and E, ECCB and X and OXLCM and OCCIP. Is there a good source that shows how these CEFs are structured and any type of risk assessment ?
Many thanks for the link and everything you do for us. I really appreciate it.
You’re welcome Jeff
“While there is nothing that can fully answer all questions on CLOs ”