Battered CLO Investors Are About to Get a Look at Their Losses
- CLOs made it through the financial crisis relatively unscathed
- Rapid pace of loan downgrades may mean this time is different
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As U.S. financial markets have rebounded feverishly this past month from the worst of the coronavirus-induced sell-off, one asset has been conspicuously absent from the rally: the collateralized loan obligation.
Prices in key parts of the almost $700 billion market -- which through large doses of Wall Street alchemy provides financing to companies with less-than-stellar credit scores -- have remained deeply depressed, typically fetching less than 70 cents on the dollar. Back in February, before the Covid-19 pandemic throttled the economy, they hovered near par.