Negative cash introduces market price risk to euro CLOs, finds Fitch

Fitch Ratings has observed an increasing number of European CLOs running negative cash balances, according to a report published yesterday.  Creditflux readers will already be familiar with the strategy, which we reported on earlier this month.

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TAGS: Bardin Hill

Comment by: Anonymous. Posted 2 years ago [2016-02-27 00:27:58]

I agree with Fitch, but they (and other rating agencies) need to do more than just wring their hands. Clearly their CLO rating methodology does not envision this activity. (I'd also say the deal docs do not encompass the over-leveraging also.) So they need to build it into their methodology with conservative assumptions and then lower ratings as appropriate.