Leveraged Loans and Collateralized Loan Obligations (CLOs): Recent Developments and Policy Actions [June 11, 2020] [open pdf - 1MB]
From the Document: "Leveraged loans are a type of corporate debt extended to highly indebted companies. Borrowers often use leveraged loans to fund general operations or finance private equity firms' leveraged buyouts. Some leveraged loans are packaged into collateralized loan obligations (CLOs) through securitization. [...] During the COVID-19 [coronavirus diseae 2019]-induced economic downturn, the heightened market stress and reduced corporate earnings have led to performance deterioration in leveraged loans and CLOs. The related price decline is more evident for the lower-rated CLO tranches. The pricing reflects the investors' expectation that the relevant loss absorption structures may protect senior tranches while eroding certain equity and mezzanine tranches. The Federal Reserve (Fed) announced support for some highest-rated CLOs, benefiting certain newly issued CLOs. This Insight examines selected performance measures of leverage loans and CLOs and the related federal government interventions."
CRS Insight, IN11421
Congressional Research Service: https://crsreports.congress.gov/