Loose docs an ‘existential problem’ for CLO market, say US conference attendees

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Loose docs an ‘existential problem’ for CLO market, say US conference attendees

  1. Victoria Zhuang
4 min read

Investors and collateral managers in the US CLO market are calling for greater cohesion in the industry, as a rise in loan defaults brings the threat of loose covenants to life.

The ‘covenant-lite’ loan documents that have become widespread in a years-long hot streak for the credit markets can impact recoveries when borrowers default, and lead to higher losses. This can impact returns for CLO equity investors, and if it gets bad enough, for debt investors too.

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