Recent press coverage in Danish media compares the risk of Collateralised Loan Obligations (CLOs) based on leveraged loans with Collateral Debt Obligations (CDOs) based on subprime mortgage loans.
CLOs are even categorised as a less safe investment than subprime CDOs, an asset which experienced very large realised losses during the crisis. In our view, this is a misconception. Subprime mortgage CDOs experienced realised losses accumulated over 5-years of more than 90% in the more junior tranches compared with just 2.4% and 0.9% in CLO “BB” tranches in Europe and US, according to data from Moody’s.
We do believe that CLOs are an interesting asset class with an attractive risk-return. As one of the largest investors in the Nordics in both leveraged loans and CLOs, we would like to give a deeper insight in the CLO structure – see the article below.
Accunia: Investing in CLOs