Working Paper: NBER ID: w14878
Authors: Efraim Benmelech; Jennifer Dlugosz
Abstract: Collateralized Loan Obligations (CLOs) were one of the largest and fastest growing segments of the structured finance market, fueling the 2003-2007 boom in syndicated loans and leveraged buyouts. The credit crisis brought CLO issuance to a halt, and as a result the leveraged loan market dried up. Similar to other structured finance products, investors in CLOs rely heavily on credit rating provided by the rating agencies, yet little is known about CLO rating practices. This paper attempts to fill that gap. Using novel hand-collected data on 3,912 tranches of Collateralized Loan Obligations (CLO) we document the rating practices of CLOs and analyze their existing structures.
Keywords: No keywords provided
JEL Codes: G01; G24; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit ratings of CLO tranches (G33) | credit quality of underlying assets (G32) |
| structuring practices (D47) | credit ratings of CLO tranches (G33) |
| investor demand for AAA-rated securities (G12) | credit ratings of CLO tranches (G33) |
| credit rating process (G21) | perceived risk of underlying collateral (G33) |
| credit quality of underlying assets (G32) | actual risk of underlying collateral (G33) |
| structuring practices (D47) | investor demand for AAA-rated securities (G12) |