Unlocking the Resilience of Collateralized Loan Obligations: Exploring Historical Global Performance, Regulatory Scrutiny, and the EU Market’s Innovations
Joseph Trunzo et al.
What the paper says
This article provides an overview of collateralized loan obligations (CLOs) as securitizations backed by diverse portfolios of senior secured leveraged loans, their historical performance and default rates, and how they differ from other securitization vehicles. It explains the resilience of the asset class, due in part, to covenants that limit risk exposure and offer early identification of stress. This article also discusses the deterioration of covenant quality in leveraged loans and the benefits and drawbacks of covenant-lite loans. The authors refute concerns that CLOs will be the next source of a financial crisis and explains the regulatory and investor scrutiny they are subject to. The European CLO market is well-regulated, transparent, and has improved liquidity, with increasing interest in investment-grade tranches. Issuers have adapted and innovated in response to crises, leading to new structural modifications and ESG adoption. The market is expected to remain robust due to its ability to adapt and the improved investor base.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.00 × 0.4 = 0.00 |
| M · momentum | 0.20 × 0.15 = 0.03 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.