Roll-Up, Roll-Up – Protecting CLO Positions In Priming Transactions

The growth of the leveraged loan markets in both Europe and the US over the past several years has led to significantly increased access to financing for borrowers. While a burgeoning leveraged loan market is overwhelmingly positive for the collateralised loan obligation ("CLO") market, the shift of power in favour of borrowers has led to some underlying loan documentation containing fewer lender protections than has historically been the case. These "Cov-Lite Loans" typically include few (if any) financial maintenance covenants and contain wide permissions for various transactions, including additional borrowing and/or asset sales.

CLOs in both Europe and the US are usually permitted a relatively significant exposure to Cov-Lite Loans. This provides an important expansion in the universe of assets that CLOs can acquire and improves portfolio diversity for the benefit of investors. However, a development in certain liability management techniques by borrowers has