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ARTICLE · 16 OCTOBER 2019

CLO Investors Benefiting From 'MASCOT' Note Flexibility

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Bylined article by Banking & Finance counsel Joanna Nicholas (New York).

United StatesFinance and Banking
Joanna Nicholas
Joanna Nicholas
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Bylined article by Banking & Finance counsel Joanna Nicholas (New York).

While Aristotle may have coined the phrase "the whole is greater than the sum of its parts" we doubt that he was thinking about CLOs.

But sometimes the opposite is true: the sum of the parts is greater than the whole. This can happen when a company is acquired and then sold off in pieces that are more valuable than the purchase price of the company. Recently, some CLO market participants have suggested the same may be true for CLO debt when structured with specific features that are described in this article.

In a typical CLO structure, a pool of loans is aggregated and notes backed by the pool are sold to investors in debt and equity tranches reflecting varying levels of risk/reward. The debt tranches are typically floating rate instruments. Unlike many other securitized products, CLOs are actively managed by a collateral manager that buys and sells loans in and out of the collateral

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