Eagle Point Credit's Ko on Leveraged Loans, CLOs

The video discusses the current state of the loan market, highlighting the increase in defaults and downgrades due to rising interest rates. It compares CLOs to banks, emphasizing the stability of CLOs in volatile times. The discussion shifts to the attractiveness of secondary markets over primary ones, especially during market dislocations. The potential impact of a US debt default on the CLO market is considered, noting the strong structural protections of AAA and AA CLOs. Finally, the ongoing transition from LIBOR to SOFR is explored, with a focus on its implications for the loan market.

What is one advantage of CLOs over traditional banks during volatile times?

• CLOs have non-mark-to-market financing.

• CLOs face frequent margin calls.

• CLOs are funded by deposits.

• CLOs have shorter-term financing.

Why might the secondary market for CLOs be more attractive than the primary market?

• Secondary market offers lower yields.

• Primary market has fewer conflicts of interest.

• Secondary market offers higher loss-adjusted returns.

• Primary market is more volatile.

What historical events have shown the secondary market to be more attractive?

• All of the above.

• The COVID-19 pandemic.

• The 2015-2016 energy crisis.

• The 2008-2009 financial crisis.

What is a key reason AAA and AA CLOs have never defaulted?

• They have high loan recovery rates.

• They rely on government bailouts.

• They have no structural protections.

• They are not affected by market changes.

What would be a major concern if the US government defaulted?

• There would be broader economic issues.

• AAA and AA CLOs would break.

• CLO market would collapse.

• Loan recovery rates would drop to zero.

What is the deadline for the transition from LIBOR to SOFR?

• January 1, 2024

• June 30, 2023

• December 31, 2023

• March 31, 2023

How are loan issuers attempting to implement amendments during the LIBOR to SOFR transition?

• By using negative consent amendments.

• By reducing loan amounts.

• By increasing interest rates.

• By offering higher CSA rates.