in financial crisis kaum einer der Investoren in CLOs versteht wirklich das Risiko bei CLOs, das abhängig ist von der Einstufung bei Moodys u.a und die haben 20% auf Review
www.marketwatch.com/story/...like-they-did-in-2008-2020-05-14
In April, Moody’s placed 20% of its rated collateralized loan obligations (CLO) (valued at around $22 billion) on review. The decision carried ominous echoes of 2008 and the Great Financial Crisis, when collateralized debt obligations (CDOs) proved problematic for the U.S. and global economies. In the current financial crisis, CLOs, which — despite industry protestations to the contrary — share many of same structural characteristics as CDOs, may cause similar problems.
Like mortgage securitizations, CLOs package portfolios of corporate loans (often of lower-quality) into investable securities. Investors do not take a pro-rata interest in the portfolio but instead take different slices of risks. In return for higher returns, investors in the equity or subordinated tranches take the first losses. Meanwhile, Investors in the senior tranches are protected against these first losses and receive lower returns. In recent years, the underlying assets used have been riskier non-investment grade leveraged loans.
The equity tranche investors are typically hedge funds, private equity, institutional investors (pension funds, insurance companies), some mutual funds (depending on their mandates) and high-net-worth individuals. Some emerging-market banks also purchase the equity tranche. Generally, they are looking for the high yield and hoping for either no defaults or just a few.
To enhance investor returns, CLOs have introduced higher levels of leverage and complex risk. While banks are required to hold capital of up to 16% against their loan exposure, CLOs, which are not regulated, hold significantly less. This increases leverage, generating potentially higher returns for shareholders.
But CLOs expose investors to loss leverage; that is, they change sensitivity to particular events.
... an investor must take the first few defaults in their entirety — not pro-rata as where they spread their money across all the loans. The investor is exposed to the first five defaults out of the 100 loans in the portfolio. Any five losses would wipe out the entire equity investment of $30 million ($6 million loss per loan times 5).
Even though the underlying loans are the same, the investor risk profiles are dramatically different. For the same event, with any five losses, the loss for the diversified investor is $0.9 million versus $30 million for the CLO equity investor. For the same five losses. the CLO equity investor will suffer a loss 33 times greater than where an investment is spread equally across all 100 companies in the portfolio. This is known as default- or loss leverage.
if there are many defaults driven by something like the coronavirus pandemic, ironically, the investors in riskier securities are protected as their loss is capped by the amount of their investment; e.g. the $30 million above. Investors in the senior, and safer, securities assume greater exposure to systemic events. ....
Many investors rely on the ratings of the CLO securities and rating agency risk models, which are highly sensitive to assumptions.
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