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ARTICLE · 25 SEPTEMBER 2017

Are CLOs Too Good To Be True?

TMF Group BV
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Getting an attractive yield on your investment while playing it safe sounds like a great combination, but this is not true when you are investing in collateralised loan obligations (CLOs).

European UnionFinance and Banking
Huub Mourits
Huub Mourits
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Getting an attractive yield on your investment while playing it safe sounds like a great combination, but this is not true when you are investing in collateralised loan obligations (CLOs).

When talking about CLOs, the main discussion always quickly goes to the CLO market pre- and post-economic crisis; the evaluation on how CLOs were set up, and to what extent investing through CLOs would be considered a safe and beneficial investment strategy.

CLO issuance and their role in a wider economy

A CLO is structured via an orphan structure which issues tranched notes (liabilities) that are secured or collateralised by a portfolio of leveraged loans. The supply (shortage) of leveraged loans is a significant hurdle for further issuance, together with regulatory issues or uncertainty about upcoming regulations.

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