Squeezed CLOs switch to meet B3 supply

By Owen Sanderson
31 Mar 2021

Plenty of CLO managers are still failing their weighted average rating factor (WARF) tests on both sides of the Atlantic, limiting their capacity to buy new lower-rated deals, even as banks bring some of their most challenging offerings to market as the quarter closes.

In Europe, around 50% of deals are breaching their WARF tests, a measure of portfolio quality which assigns a rating-based score to a loan portfolio backing a deal. When managers are breaching this test, they are required to “maintain or improve” their WARF score, limiting trading activity.

That ...

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