Insights

Industry events / 25 June 2020

Crestbridge sponsor Opal Group’s virtual CLO market outlook

Crestbridge sponsor Opal Group’s virtual CLO market outlook

Crestbridge was delighted to sponsor Opal Group’s virtual CLO market outlook event on Wednesday 24th June.

Crestbridge’s Cayman Islands Directors George Bashforth and Jonathan Bain, and New York Director Adam Zivitofsky, attended the event and were available at our virtual stand throughout the conference ‘meeting’ with attendees.

At the start of this year debt and equity markets were, for the most part, enjoying record highs, and collateralized loan obligations were no exception to this; with interest rates at historic lows, investors were turning to CLOs in their avid search for yield. As of the beginning of 2019, JPMorgan Chase estimated that the CLO market had grown 25% in the past two years to about $700 billion, and annual returns had averaged about 18% since 2004.

There were, however, caveats to this; the end of 2019 saw spreads for the lower tranches of CLOs widen to unprecedented levels, with some European issued structures witnessing a 4% increase on their tightest historical spreads. This was due in part to an underlying concern from investors about the viability of investing in debt in the late stages of an extended business cycle.

However, after the great financial crash, securitized assets came under intense scrutiny, with a wealth of regulations being imposed on them to protect bought lenders and borrowers. For CLOs, one form this took was a threshold for how many loans rated triple-C can be present within each structure. After a deluge of downgrades from rating agencies in March this year, a great deal of corporate CLOs found themselves in breach of these limits.

Many questions now remain; where do the risks lie for the investors and the institutions holding these CLOs? How likely is it for these instruments to default? What would the consequences of this be? Where do the opportunities in this situation lie? What does the future hold for the CLO market?

At Opal Group’s CLO market outlook event, prominent panelists from leading firms looked to address these questions, and more. The topics which were examined included:

  • Introducing Live Bidding: A Better Way to Trade CLOs
  • ESG & Impact CLOs
  • Middle Market CLOs
  • US Investor Roundtable
  • CLO Trading: Trends & Outlook
  • US Regulatory Issues

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