CLOs May Be Riskier Than What Ratings Suggest, New Study Finds
- Report shows gap in CLO and leveraged loan grades recently
- Raters may be slow to downgrade CLOs due to subjective factors
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Collateralized loan obligations offer investors higher yields and credit grades than other asset classes thanks to large doses of Wall Street alchemy.
But that safety may be fleeting, according to a new study, which says that the widespread failure of rating companies in recent months to downgrade CLOs in line with their underlying loans has made them significantly riskier than they appear.