How CLO managers muscled in on the LBO market
CDS on leveraged loans
At the triple-A level the bid is distorted by growing volumes of negative basis trading, but at the double-B level there is some differentiation. Prudential M&G’s fourth Leopard CLO in April this year set a new tight at the triple-A level: 22 basis points for a 7.6 year WAL that observers attribute to the strength of the Pru M&G name. But Leopard only came 5bp inside the recent Mercator CLO for first time manager New Amsterdam Capital at the triple-A level. However, the double-B minus tranches reveal a stark difference: 425bp for Leopard, 500bp for Mercator.
Balancing act
Given the struggle for allocation, how should CLO managers be judged? With the exploding demand for skilled managers, those with a good track record in this market have high prices on their heads....
