In a recent interview, Barings’ Head of Structured Credit, Matt Natcharian, and Head of U.S.-Managed CLO Funds, Adrienne Butler, discuss the pressures facing these markets today, and the opportunities they pose amid a late-stage credit cycle.
With the recent bout of market volatility, and question marks around where we are in the credit cycle and when the next economic downturn may hit, investors are rightly asking what it all means for CLOs and leveraged loans.
In this Q&A, Barings’ Head of Structured Credit, Matt Natcharian, and Head of U.S.-Managed CLO Funds, Adrienne Butler, address the pressures facing the leveraged loan and CLO markets today.
Recently, there has been a lot of negative press surrounding leveraged loans and, by extension, CLOs. In some cases, we’ve seen comparisons between today’s market and the period preceding the global financial crisis. How much of that is warranted, and is it a fair comparison?
MATT: I’d like to start by making the point—which you often don’t see in a lot of news articles—that a Collateralized Loan Obligation (CLO) securitization is actively managed by a professional institutional credit manager that’s an expert in buying and managing large corporate loans. Most securitizations, like those containing auto loans or mortgages, are just pools of similar assets that are packaged and analyzed statistically. But here you have credit analysts at well over 100 institutional asset managers that have issued and managed CLOs. They’re picking the individual loans, building a diversified corporate portfolio and then actively managing it for a period of five or so years.