Status of Home Mortgages and CLOs

by JJ_Shiro

I’ve collected this over the past few weeks. Thought I would share considering the controversy about current market valuations.

Mortgages

CLOs

  • Collateralized Loan Obligation (they’re just like CDOs) – $1.4 trillion market.
  • Fitch Ratings expects an 8-9% default rate by the end of 2021.
  • Cumulative impact expected to exceed $200 billion or 15% of CLOs.
  • CLOs can only hold 7.5% of CCC rated debt, 8% of them exceeded this amount earlier this year.
  • 30% of CLOs likely exceed that now.
  • The Fed, FDIC, and OCC have limited reach into CLOs. I know the Fed included them in the recent $2.3 trillion package, however a-lot of the lower rated stuff is financed by credit funds and shadow banks. They don’t regulate these entities.
  • All the big banks play, as well as pension funds and insurance companies.
  • Revolving credit lines are providing liquidity.

– For above: www.forbes.com/sites/mayrarodriguezvalladares/2020/03/27/distress-in-the-leveraged-loan-and-clo-markets-will-significantly-hurt-lenders-and-investors/#50abafe07e10 , www.bloomberg.com/news/articles/2020-04-18/moody-s-may-downgrade-22-billlion-of-clo-bonds-on-covid-risk , www.bloomberg.com/news/articles/2020-04-03/why-leveraged-loans-clos-feed-worries-in-virus-slump-quicktake