Jefferies plans vertical strip package for CLO risk retention, sources say

By Sayed Kadiri

Monday, November 30, 2015

Well-placed sources have told Creditflux that Jefferies is planning a new risk retention strategy whereby it partners with financial institutions to provide financing to CLO managers

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TAGS: Risk retention Jefferies

Comment by: Anonymous. Posted 8 years ago [2015-12-01 19:07:57]

Yes, to the question below. If I seize your CLO bond to sell to the market to recoup the loan I made to you (as CLO manager), then the deal is out of compliance as soon as I take the collateral. What would that do to the market value of the CLO bonds? Also, with this strip financing, how can the CLO change managers? Does the new manager need to assume the debt obligation? Or pay back that loan immediately? The new manager will need that collateral for its own risk retention, presumably. The MTM loss of the collateral, if any, will need to be forced on the old manager. But this old manager may be insolvent. Interesting challenge and my guess is that there's a solution. Simplest would have been to say that "risk retention" means you cannot pledge the collateral.

Comment by: Anonymous. Posted 8 years ago [2015-12-01 14:22:17]

Not certain in the sense that the security is not enforceable unless you are prepared to take a deal out of compliance?

Comment by: Anonymous. Posted 8 years ago [2015-11-30 23:57:00]

Would be interesting to see details of the lending. Earning 50 bps above the blended CLO note yield would be great compensation if the banks have perfected security in the notes themselves. But I gather this pledge status is not certain.

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