Vous êtes sur la page 1sur 5

Outline CLOs and CDOs and other forms of securitization is important. Why?

? CLOs performed better than CDOs in the crisis. Most of them are still rated AA or higher. Losses in the crisis were also lower. Therefore did not play a part in causing/exacerbating the crisis. However, their issuance is still down. What can we do to rectify this and also implement best practices from CLOs to CDOs so as to make that industry better as well. What made CLOs different and how can we apply those lessons to CDOs? Risk retention or skin in the game Most of the people in the CLO industry were already retaining risk in many ways. An in-depth look at risk retention with William B. 5% horizontal proposed under the Dodd-Frank act. Manager selection and manager incentives Suggested improvement: Aligning incentives of managers of SPV and asset managers and rules around the same. Information and selection: CLO investors receive loan level disclosure. The default of underlying portfolios was MUCH lower in the CLO space. So not all the benet can be given to the different structures. However, it should be remembered that corporate defaults were also very high...So to some extent there were some aspects of more information available. Calls for more knowledge about the underlying portfolio. Using the American Securitization Project Forum Restart as an example in this case. Conclusion with recommendations: Better information about underlying using standards for , alignment of incentives, manager incentives, separation of manager and selector of the SPV. Differences between CDOs and CLOs: The performance of these CDOs vs. CLOs in the nancial crisis. A large past of CDOs were wiped out in the nancial crisis. Not so for CLOs, 85% of the CLOs that had a AAA rating before the crisis maintained a Aa or higher rating during and after it. - CLO letter to Dodd Frank The

rated between Aa1 (sf) and Aa3 (sf) are now at or above their original ratings. In comparison, only a minority, or about 35% of US BSL CLO tranches and 17% of European BSL CLO tranches we originally assigned ratings of A1 (sf) or below, were at or above their original ratings after the review, as Exhibit 3 shows. Since the recent methodology changes generally resulted in expected credit enhancement levels higher than those prior to the financial crisis, many tranches with Baa1 (sf) to Baa3 (sf) ratings before 2009 remain below investment-grade.
EXHIBIT 3

Proportion of BSL CLO Tranches with Ratings at or Above Original Ratings, US BSL CLOs vs. European BSL CLOs
As of December 2011
US 100% 90% 80% 70% 60% 50% Europe

medium enterprises (SME) CLOs, with total original debt issuance of $37.8 billion, in the US. In 40% 30% Europe, we rated 1,253 tranches in 182 BSL CLOs, with total original debt issuance of $90.3 billion.
20% 10% Most of the CLOs we rate were issued between 2003 and 2007. CLO issuance volume peaked in 2006 0% and the first half of 2007, then Aa declined sharply in 2008 and 2009 because of the global credit crisis. Aaa A Baa Ba CLOMoodys Investors Service in the second half of 2010 and throughout 2011, although volumes were issuance recovered Source: much lower than before the crisis. Exhibit 1 depicts the evolution of global CLO issuance by rated volume, Exhibit 81% deal count. In US SME CLOs,2, by of tranches have retained their original Aaa (sf) ratings. In comparison, less

than 50% of US SME CLO tranches to which we originally assigned ratings below A1 (sf) are at or EXHIBIT 1 above their initial ratings after the review, as Exhibit 4 shows. Global CLO Rated Volume by Vintage (in USD billions)
EXHIBIT 4

As of December 2011

Current Ratings CLOs SME SME CLOs US BSL of US US CLO Tranches Relative to Original Ratings European BSL CLOs
As of December 2011 80
90% 80% 70%

Rated Volume (in billions USD)

70 Above Original 60 50

At Original

Below Original

40 60%
50% 30 40% 20 30% 10 20% 10% 0%

1999
Aaa

2000

2001

2002
Aa

2003

2004
A

2005 Vintage

2006
Baa

2007

2008

2009
Ba

2010

2011

Source: Moodys Investors Service


Source: Moodys Investors Service

Although CLOs have been lumped together with other structured investments that EXHIBIT 2 imploded in the nancial crisis, Babson Capitals analysis of 253 deals and 43 Analysis of Trading Flexibility in CLOs Global CLO Rated Transactions by Vintage As of December 2011 managers showed 173 deals (or 33%) average net loss of CLOs had trading flexibility, As of the end of 2011, a 2.2 percent of Moodys-rated US BSL collateral a phenomenally good number going through the CLOs CLOs and 92 (48%) of the amortizingsaid as Exhibit 5 US BSL CLOs US SME nancial crisis, Mr. Natcharian CLOs, with results ranging European BSL CLOs including 81 (24%) of the reinvesting from a160 percentUS BSLfor the strongest manager in their9reinvestmentloss. - as of the capital shows. 7 Most of the gain CLOs (64% of the total) were still to a percent periods Babson
end of140 2011. A larger share of the amortizing CLOs have regained trading flexibility in comparison to
120

Deal Count

100 80 MOODYS

Explain the differences between the structure of CLOs and CDOs based on the 60 following diagram: 40
20 0 1999 2000 2001 2002 2003 2004 2005 Vintage 2006 2007 2008 2009 2010 2011

CLO INTEREST

MARCH 5, 2012

Source: Moodys Investors Service

A. The claims are, of course, different. Most CLOs consist largely of the debt of large companies. B. The asset manager cannot trade assets. C. The Junior or the equity layer is retained by the originator in large part. D. The asset manager managing is usually people who are on the inside of the banks. E. Are incentives of the asset manager and the others aligned: yes in the case of
Securitisation markets: key participants
Stylised overview of the players involved in securitisations and of their respective roles

Rating agencies

evaluate credit risk/deal structure, assess third parties, interact with investors and issue ratings Asset manager trades assets insures Financial guarantor particular tranches

funds Arranger claims funds claims

Special purpose vehicle


Assets Liabilities

Senior funds Mezzanine tranches Junior

Originator

collects and makes payments Servicer

monitors compliance

Investors

Trustee

Source: Adapted from Fender and Mitchell (2005).

Graph 2

Risk retention: The 2 graphs belowonly portionsmost of the risk resided in the layer up to applies) or whether show that of portfolios are securitised and it is not 2.5% of the CLO (Figure 2) and this risk was alreadyloans will be securitised (ie originateknown at the point of origination which being retained by the CLO as shown in Figure 3. Figure 2 describes that model appeared to beheld is roughly 1.7% ofin the average equity a distinguishing feature and-distribute). The former the face value of the CLOs. Already practiced by(Kiff and Mills (2007)), whereas banks in managers of CLOs: US residential mortgage markets
other countries often seem to securitise only relatively small parts of the loan and mortgage portfolios they originate. Credit rating agencies have been another important part of the process, supplying investors with assessments of the credit risk (expressed as expected loss or probability of default) of securitised instruments. Because of the high proportion of their rating revenues derived from structured finance prior to the crisis, rating agencies may have been encouraged to rate highly complex products for which little or no historical performance data existed. For the same reason, the agencies may have failed to make their methodologies and related risks transparent enough (at least to investors), and to highlight the limits of ratings in measuring risks beyond expected loss (CGFS (2005, 2008)). At the end of the securitisation chain, investors are usually expected to

for the purpose of securitisation (ie whether the originate-to-distribute model

rating agencies

and

quity of roughly 1.7% of the face value of their CLOs.5 However, the average includes wide ranging from very small amounts of equity for smaller CLO businesses (which often utilized other skin in the game) to considerable amounts of equity for businesses that used CLOs as a financing pically retained much of the equity.
Fig. 3: Historical CLO equity holds by managers
6%

Equity hold (% CLO capitalization)

5% w/BDCs 4% 3% 2% 1% 0% Min (w/0% Min (excl. 0% equity contrib.) equity contrib.) Avg Max w/o BDCs

Source: LSTA CLO member poll

orward, the LSTA asked respondents how much equity/first loss position they realistically could still raise new CLOs. As Fig. 4 illustrates, the CLO managers on average said that they could Fig. 2: Most expected loss resides in equity/first loss position equity and still raise new CLOs.
70% 60% 0-2.4% (first loss) tranche 2.4-3.9% 3.9-6.5% 6.5-9% 9-10.5% 10.5-100%

Share of expected loss

50%
40% 30%

n was issued after the CLO formation questionnaire; there were 13 respondents to this questionnaire, who collectively 20% billion of CLO AUM.
10%

4
0%

366 Madison Avenue, 15 Fl., New York, New 6 York 10017 1 2 3 4 5 7 Year Tel. 212.880.3000 Fax. 212.880.3040 www.lsta.org
Source: IMF

th

CLO managers often do hold equity in their CLOs. The LSTA polled CLO managers, asking them The underlying assets were just Fig. 3 One potential reason for the better uch equity they historically have contributed. As better:illustrates, excluding Business Development ations (which performance of CLOs then other securitizationin a CLO), CLO that the underlying often hold the majority or all of the equity instruments was managers contributed loans equity of roughly just performed better. How was this better performance caused? includes wide 1.7% of the face value of their CLOs.5 However, the average ns, ranging from very small amounts of equity for smaller CLO businesses (which often utilized other f skin in the game) to considerable amounts of equity for businesses that used CLOs as a financing d typically retained much of the equity.
Fig. 3: Historical CLO equity holds by managers
6%

italization)

5% w/BDCs

EXHIBIT 8

Collateral Defaults for US and European CLOs over Time


January 2008 December 2011
Default % 7% 6% 5% 4% 3% 2% 1% 0% Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Source: Moodys Investors Service EXHIBIT 9 U.S. European

Cash Levels for US and European CLOs over Time


January 2008 December 2011
Cash% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Source: Moodys Investors Service EXHIBIT 10 U.S. European

Collateral Weighted Average Life for US and European CLOs over Time
January 2008 December 2011
WAL (years) 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Source: Moodys Investors Service U.S. European

Vous aimerez peut-être aussi