CLO Performance

Larry Cordell, Michael Roberts () and Michael Schwert

No 29410, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the performance of collateralized loan obligations (CLOs) to understand the market imperfections giving rise to these vehicles and their corresponding economic costs. CLO equity tranches earn positive abnormal returns from the risk-adjusted price differential between leveraged loans and CLO debt tranches. Debt tranches offer higher returns than similarly rated corporate bonds, making them attractive to banks and insurers that face risk-based capital requirements. Temporal variation in equity performance highlights the resilience of CLOs to market volatility due to their closed-end structure, long-term funding, and embedded options to reinvest principal proceeds.

JEL-codes: G12 G14 G23 G24 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-ban and nep-cfn
Note: AP CF
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Published as LARRY CORDELL & MICHAEL R. ROBERTS & MICHAEL SCHWERT, 2023. "CLO Performance," The Journal of Finance, vol 78(3), pages 1235-1278.

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Journal Article: CLO Performance (2023)
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