CLO
topic on 2 shows · 26 statements across 9 episodes
Invest Like the Best 
Capital Allocators
26 statements about CLO, every show
Lyon: About 93% of pre-GFC CLOs generated positive equity returns
“I'm not a CLO guy, but something like 93% of the CLOs formed before the GFC had positive equity returns.”
Milgram: CLOs have been primary corporate credit vehicle for 10-15 years
“The primary vehicle for credit creation and corporate credit over the past 1015 years has been the CLO.”
Milgram: Outsourcing investment decisions creates fee-motivated misalignment
“I would also say one of the things I don't like that's happening out there is the productization of investment decisions. So there's a lot of outsourcing of critical thinking because I can go to this person that can, that'll make this decision for me, and I'll…”
Eichhorn: PE-backed insurers use much more private credit and offshore reinsurance
“Clearly there is a very, very different model for the private equity backed insurers. A lot of insurers are using private credit to be sure, but the private equity backed are using it much more and other products, whether it be CLOs and using a lot of offshore…”
CLO AUM grew from $6 billion in 1998 to $1 trillion today
“So there was basically about six billion in AUM when I joined. And there was six different CLO managers. And today there's really over a trillion in CLO AUM and about a hundred different active CLO managers.”
30-year average annual default rate on CLO loans is about 2%
“You can look back 30 years, and by our estimate, the default rate in CLOs is about two percent.”
Only about 15 institutional investors provide initial CLO equity
“So I think there's about 15 of us. One of the common jokes in the CLO industry is that you go to CLO conferences, of which there's many, and it's a common theme that, ah, you know, there's new investors coming into the market, and you kind of always hear this,…”
Only about 6% of CLOs have historically generated a negative IRR
“So by our math, it's about six percent of CLOs that have had negative IRR.”
Asurion is the single largest loan held across CLO portfolios
“Asurion is the largest loan in CLOs today.”
CLO equity liquidations often return just 40 to 50 cents on the dollar
“There's no par payout at the end. A lot of times you're getting back 40 cents, 50 cents on the dollar. Now, over the eight-year life of the CLO, you've got these very large distributions along the way. Hopefully it nets to a nice return for you, but you don't …”
Corre: CLO Slowdown Is Creating Greater Concessions in Large Bank Debt
“Essentially the bank debt market, leverage loan market, I should say, has been really dominated by the CLOs. And that algorithm right now is broken. So CLO formation is harder now than it was before. There's less demand for the triple A tranches of CLOs. So wh…”
Majewski: CLO portfolios actively change over time unlike static securitizations
“Unlike most other forms of securitization, the assets vary over time. If you invest in a mortgage pool or a auto securitization, you start with a 1010 thousand, a 100,000 loans, whatever it may be, and that's what you get, and you hope they all work out, and i…”
Majewski: Prepayment rates matter far more than default rates in CLOs
“CLO people really talk about default rates. How many loans are going to default? The prepayment rate, in my opinion, is far more important.”
Majewski: CLOs avoid bank run risks because debt matures after loan assets
“A CLO has no financing that's due Prior to its last loan maturing. So we can see every loan through if we want to its ultimate maturity date. And again, every loan will default or pay off at par. It's a binary outcome. And I have financing in place that's long…”
Majewski: CLO AAA tranches require 70% corporate defaults to impair
“They typically have 35% credit enhancement to the triple A level, and if you think about companies recovering 50 cents on the dollar, you'd need 70% of corporate America to default.”
Majewski: US CLO market size is $750B to $800B
“If there's probably 750 to eight hundred billion of CLOs outstanding in the United States right now”
Majewski: Eagle Point Holds 101 Majority Positions Across CLOs
“And as I mentioned earlier, we have, I literally saw the report yesterday. We now have 101 majority positions across CLOs”
Tom Majewski: CLO opacity means investors need to be in the club
“CLOs are not reported on trace, for example. So it's a little more of an opaque market where you need to be in the club to be able to really outperform.”
Majewski: Only ~20% of CLO Managers Prioritize Equity Returns
“Only about 20% of CLO collateral managers really share that DNA of appreciating they're trying to deliver returns for the equity.”
Majewski: CLO Equity Returns Depend on Manager Quality, Not Portfolio Quality
“There's no correlation, in my opinion, to the returns to the equity based on the quality of the portfolio. It's all about the quality of the collateral manager.”
Majewski: CLOs Are the Most Transparent Pooled Investment Vehicles
“So the richness of the data, there's no more transparent pooled investment vehicle than a CLO.”
Tom Majewski: Continuous CLO supply allows investors to easily pass on deals
“On a CLO, there's always the next one, and we have to keep that in mind. Let's not, if we can sense this, someone else bidding keenly. Okay, that's fine. We'll let this one go. That's the nice thing in our world. There's always another. They're good and bad. T…”
Majewski: 96% of pre-crisis CLO equity returned positive with 15% median IRR
“96% of CLOs had a positive return to the equity class from before the financial crisis with a median of 15 IRR, outperforming private equity, outperforming the S&P 500 even.”
Boehly: CLOs, CBOs, and CDOs are essentially limited-life banks
“And to me, a CLO or a CBO or a CDO Is really a bank with a limited life.”
Martin: High-yield bond analysis is a black belt for credit investing
“If you're doing high yield bonds, you sort of have a black belt in credit, and so to do loans in my brain was much easier. The wrinkle being we then took those loans and put 10 turns of leverage on it in a CLO. So the stakes of being wrong were just 10 times h…”