Media: Creditflux July 2021
Hold on to your hats: at long last market participants agree that US CLO economics are in favor of equity tranche investors. This brings to an end a decade-plus run where value was centered on triple A-rated tranches (which, in the US, have been paying about five times as much spread as they did before 2008).
“We have never seen a situation where new issue systematically offers better value than CLO equity in the secondary market,” says Michael Kurinets, chief investment officer at Capra Ibex Advisors in New York. He says Capra Ibex typically buys CLO equity in the secondary market, but nine of the 11 deals it has executed this year have been in the primary market. “New issue is cheaper by as much as 3 percentage points in yield and 10 points in price,” he says. “For secondary equity to match that you would have to come up with a scenario where there is a liquidation within three years to fast-track principal repayments.”
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