{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2024,5,21]],"date-time":"2024-05-21T05:56:45Z","timestamp":1716271005720},"reference-count":15,"publisher":"Wiley","issue":"3","license":[{"start":{"date-parts":[[2022,9,29]],"date-time":"2022-09-29T00:00:00Z","timestamp":1664409600000},"content-version":"vor","delay-in-days":28,"URL":"http:\/\/onlinelibrary.wiley.com\/termsAndConditions#vor"}],"content-domain":{"domain":["onlinelibrary.wiley.com"],"crossmark-restriction":true},"short-container-title":["J Applied Corp Finance"],"published-print":{"date-parts":[[2022,9]]},"abstract":"<jats:p>In recent years, collateralized loan obligations, or CLOs, have become the largest nonbank lender in the U.S. This added source of financing, which lies outside the purview of banking regulation, has given rise to the concept of a \u201cshadow banking system.\u201d And the lack of transparency and regulatory oversight of CLOs and shadow banking have led to concern that this growing market might contribute to a financial crisis similar to the GFC of 2007\u20102008, which was triggered by the securitization of subprime mortgages.<\/jats:p><jats:p>The authors provide a first look at CLOs and their distinctive features as a securitization vehicle that allowed them not only to weather the 2007\u20102008 financial crisis but to thrive in the post\u2010GFC world. Though the collateral performance of CLOs suffered during GFC, their recovery was faster and stronger than that of mortgage\u2010backed CDOs. Furthermore, the return performance of CLO tranches has in general also been superior to the returns from the comparable leveraged loans upon which CLOs are based\u2014though there are difficulties in measuring returns for CLO tranches since transaction prices are not public information, especially in the case of the equity tranche.<\/jats:p><jats:p>After describing their remarkable growth, the authors focus on two fundamental risks posed by CLOs. The first risk relates to the reliability of credit ratings\u2014though it's important to note that the extensive due diligence behind leverage loans versus mortgage loans effectively reduces CLO investors' reliance on the rating agencies. The second risk relates to the systematic risk borne by the CLO investors, which is lower than that of MBS if only by virtue of the fact that CLOs are based on shorter\u2010term floating rate instruments than 30\u2010year mortgages. More important, what happens in most MBS, CLO managers can actively manage their loan portfolios in the secondary markets, and effective and active management of collateral works to limit both default risk and the possible effects of systemic shocks.<\/jats:p>","DOI":"10.1111\/jacf.12514","type":"journal-article","created":{"date-parts":[[2022,9,29]],"date-time":"2022-09-29T11:24:21Z","timestamp":1664450661000},"page":"35-50","update-policy":"http:\/\/dx.doi.org\/10.1002\/crossmark_policy","source":"Crossref","is-referenced-by-count":1,"title":["Collateralized Loan Obligations: A Primer"],"prefix":"10.1111","volume":"34","author":[{"given":"John","family":"Martin","sequence":"first","affiliation":[{"name":"Baylor University"}],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Akin","family":"Sayrak","sequence":"additional","affiliation":[{"name":"University of Pittsburgh"}],"role":[{"role":"author","vocabulary":"crossref"}]}],"member":"311","published-online":{"date-parts":[[2022,9,29]]},"reference":[{"key":"e_1_2_2_2_1","unstructured":"Bates Shiloh 2020 An Introduction to CLO Equity Flat Rock Global (February) https:\/\/flatrockglobal.com\/wp-content\/uploads\/2020\/04\/An-Intro-to-CLO\u2010Equity\u2010February\u20102020\u20102.pdf."},{"key":"e_1_2_2_3_1","doi-asserted-by":"crossref","unstructured":"Cordell Larry Michael R.Roberts andMichaelSchwert 2020 CLO Performance Working Paper Wharton School University of Pennsylvania.","DOI":"10.21799\/frbp.wp.2020.48"},{"key":"e_1_2_2_4_1","doi-asserted-by":"publisher","DOI":"10.1257\/jep.23.1.3"},{"key":"e_1_2_2_5_1","doi-asserted-by":"publisher","DOI":"10.1111\/jacf.12016"},{"key":"e_1_2_2_6_1","doi-asserted-by":"publisher","DOI":"10.1146\/annurev-financial-110118-123041"},{"key":"e_1_2_2_7_1","doi-asserted-by":"crossref","unstructured":"Foley-Fisher Nathan GaryGorton andStephaneVerani 2020a \u201cAdverse Selection Dynamics in Privately-Produced Safe Debt Markets \u201d Working Paper Revised October 2020.","DOI":"10.3386\/w28016"},{"key":"e_1_2_2_8_1","doi-asserted-by":"crossref","unstructured":"Foley-Fisher Nathan GaryGorton andStephaneVerani 2020b \u201cCapturing the Illiquidity Premium Working Paper February 2020.","DOI":"10.2139\/ssrn.3534847"},{"key":"e_1_2_2_9_1","first-page":"451","article-title":"Debt Correlations in the Wake of the Financial Crisis: What Are Appropriate Default Correlations for Structured Products?","volume":"125","author":"Griffin John M.","year":"2017","journal-title":"Journal of Financial Economics"},{"key":"e_1_2_2_10_1","doi-asserted-by":"publisher","DOI":"10.1111\/jofi.12154"},{"key":"e_1_2_2_11_1","doi-asserted-by":"publisher","DOI":"10.1111\/j.1540-6261.2005.00780.x"},{"key":"e_1_2_2_12_1","doi-asserted-by":"crossref","unstructured":"Kara Alper DavidMarques-Ibanez andStevenOngena 2015 Securitization and Credit Quality Board of Governors of the Federal Reserve System International Finance Discussion Papers Number 1148.","DOI":"10.17016\/IFDP.2015.1148"},{"key":"e_1_2_2_13_1","doi-asserted-by":"crossref","unstructured":"Liu EmilyandTimSchmidt-Eisenlohr 2019 \u201cWho Owns U.S. CLO Securities?\u201d FEDS Notes. Washington: Board of Governors of the Federal Reserve System July 19 2019 https:\/\/doi.org\/10.17016\/2380-7172.2423.","DOI":"10.17016\/2380-7172.2423"},{"key":"e_1_2_2_14_1","unstructured":"Moody's Investor Service 2019 Structured Finance: Impairment and loss rates of global CLOs: 1993-2018.https:\/\/www.moodys.com\/research\/Structured-Finance-Impairment-and-loss-rates-of-global-CLOs-1993\u2013PBS_1164579"},{"key":"e_1_2_2_15_1","volume":"2","author":"Standard & Poor's","year":"2020","journal-title":"LCD's Quarterly Leveraged Lending Review"},{"key":"e_1_2_2_16_1","unstructured":"Trivedi HimaniandLorenSageser 2021 CLO Equity: Where Does It Fit in Investor Allocations?https:\/\/documents.nuveen.com\/Documents\/Nuveen\/Default.aspx?uniqueId=d2448128-f349-4fa9-892d-64e405fbd808."}],"container-title":["Journal of Applied Corporate Finance"],"original-title":[],"language":"en","link":[{"URL":"https:\/\/onlinelibrary.wiley.com\/doi\/pdf\/10.1111\/jacf.12514","content-type":"application\/pdf","content-version":"vor","intended-application":"text-mining"},{"URL":"https:\/\/onlinelibrary.wiley.com\/doi\/full-xml\/10.1111\/jacf.12514","content-type":"application\/xml","content-version":"vor","intended-application":"text-mining"},{"URL":"https:\/\/onlinelibrary.wiley.com\/doi\/pdf\/10.1111\/jacf.12514","content-type":"unspecified","content-version":"vor","intended-application":"similarity-checking"}],"deposited":{"date-parts":[[2023,8,21]],"date-time":"2023-08-21T12:26:42Z","timestamp":1692620802000},"score":1,"resource":{"primary":{"URL":"https:\/\/onlinelibrary.wiley.com\/doi\/10.1111\/jacf.12514"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[2022,9]]},"references-count":15,"journal-issue":{"issue":"3","published-print":{"date-parts":[[2022,9]]}},"alternative-id":["10.1111\/jacf.12514"],"URL":"https:\/\/doi.org\/10.1111\/jacf.12514","archive":["Portico"],"relation":{},"ISSN":["1078-1196","1745-6622"],"issn-type":[{"value":"1078-1196","type":"print"},{"value":"1745-6622","type":"electronic"}],"subject":[],"published":{"date-parts":[[2022,9]]},"assertion":[{"value":"2022-09-29","order":2,"name":"published","label":"Published","group":{"name":"publication_history","label":"Publication History"}}]}}