Libor Floor Clo

If libor were to.

Libor floor clo.

Falling libor coupled with companies cutting interest payments on more than us 151bn of loans in the first two months of 2020 about 70 of deal flow ate into clo distributions leaving less for. Those clo indentures that do not specify a libor floor tend to be older transactions. Since the libor floor became nearly ubiquitous in leveraged loans following the financial crisis its presence has benefited the asset class. Falling libor coupled with companies cutting interest payments on more than us 151bn of loans in the first two months of 2020 about 70 of deal flow ate into clo distributions leaving less for.

Of the clo transactions that originally closed in 2014 and 2015 and remain outstanding 44 and 64 respectively had libor floors on at least one note compared with at least 88 for clos that originally closed in 2016 and later. Three month libor the rate companies often peg interest payments to has fallen 47 this year. That s because roughly one in five clo tranches lacks any sort of libor floor thresholds that guarantee minimum payouts to debt investors should the reference rate plummet. In scenario 1 3 month libor is at the 0 61270 rate set on january 1st.

If libor were to eventually fall below the spread on these structures the negative all in coupon could mean clo debt holders would in fact owe money back to the issuer. Let s run two hypothetical scenarios to understand the effects of libor floors in a clo. That s because roughly one in five clo tranches lacks any sort of libor floor thresholds that guarantee minimum payouts to debt investors should the reference rate plummet. Of the clo transactions that originally closed in 2014 and 2015 and remain outstanding 44 and 64 respectively had libor floors on at least one note compared with at least 88 for clos that originally closed in 2016 and later.

Duff phelps and kissner group were among companies that added a so called libor floor the minimum rate a key lending benchmark can be set at to its financing packages this week to ensure a base return for investors according to sources. Libor prints this low are nothing new to the clo market.