CLO

“There was also this problem in the high yield market and the telecom sector, and about 40% of all CBOs or CLOs had telecom bonds, and that was just the largest issuer there.”

“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…”

“And to me, a CLO or a CBO or a CDO Is really a bank with a limited life.”

“And as I mentioned earlier, we have, I literally saw the report yesterday. We now have 101 majority positions across CLOs”

“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.”

“CLO people really talk about default rates. How many loans are going to default? The prepayment rate, in my opinion, is far more important.”

“If there's probably 750 to eight hundred billion of CLOs outstanding in the United States right now”

“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.”

“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…”

“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…”

“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.”

“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.”

“Only about 20% of CLO collateral managers really share that DNA of appreciating they're trying to deliver returns for the equity.”

“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…”

“So the richness of the data, there's no more transparent pooled investment vehicle than a CLO.”

“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…”

“So by our math, it's about six percent of CLOs that have had negative IRR.”

“Asurion is the largest loan in CLOs today.”

“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,…”

“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 …”

“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.”

“You can look back 30 years, and by our estimate, the default rate in CLOs is about two percent.”

“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…”

“I'm not a CLO guy, but something like 93% of the CLOs formed before the GFC had positive equity returns.”