CLOs to Demand Higher Rates From B3 Companies, THL’s Herzig Says

The transcript discusses the collateralized loan obligation (CLO) market, highlighting its resilience over 25 years despite economic weaknesses and industry-specific challenges. It addresses concerns about constraints on low-rated debt and the potential for forced selling, clarifying that institutional investors are not forced sellers. The discussion also covers the strong institutional investment in CLOs, the impact of Japanese investment, and the market's future outlook.

What is one of the main concerns about the current state of the CLO market?

• The market is nearing a recession.

• The market has never faced a crisis before.

• Certain industries are struggling in a leveraged environment.

• There is a significant increase in retail fund investments.

How has the CLO market historically performed during economic crises?

• It has shown strong performance for investors.

• It has been unaffected by economic changes.

• It has led to widespread defaults.

• It has consistently underperformed.

What is a potential outcome of the constraints on B3-rated companies in the CLO market?

• The market will become more accessible to retail investors.

• B3 companies will need to offer higher rates to qualify.

• There will be an increase in forced selling.

• B3 companies will face lower interest rates.

What is a key characteristic of institutional vehicles in the CLO market?

• They are subject to frequent redemptions.

• They are never forced sellers.

• They primarily invest in retail funds.

• They avoid periods of market volatility.

How have Japanese banks responded to the potential for price drops in the CLO market?

• They have maintained their holdings without pulling back.

• They have pulled back significantly.

• They have shifted focus to retail funds.

• They have increased their investments.