CLO equity

“If I get CLO equity right, and my manager's a good job with the credit, I can't predict the path, but over a five-year return, here's how much I feel comfortable with it, and equities, the dispersion of potential outcomes is much broader than that. Maybe there…”

“The other place, Ted, I think is great. It's where you have such incredible diversity, and that's in, you know, single B rated CLO equity. So CLO equity, you know, where you gather 200 single B rated names and throw them in, and I buy the bottom slice, the equ…”

“Oddly, the higher default, lower reinvestment price scenarios are typically the best, but that goes back to my data about 2006 and seven being the best vintages.”

“And then the equity or residual holder gets all of the net investment income after all the expenses, if the lawyers needed something, the rating agencies always have a small fee, and that excess cash flow is typically about 25 to 30% on an annualized basis.”

“Of a trillion of CLO AUM, the CLO equity tranche is about 10% of the CLO's financing. So it's a hundred billion asset class for CLO equity in particular.”

“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 …”

“And then if you were in contrast, an investor in CLO equity through the financial crisis on a buy and hold basis, a lot of the equity in those deals return high, 20% returns and the debt in the CLOs defaults rarely as well.”

“It reminds me today where you just had one or two sectors having a lot of stress like we have today and the SAS with respect to levered loans, and we're seeing it in CLO equity has way underperformed. The relative loan market, because all of the damage has bee…”