Volcker Could Push CLO Managers Into Heavier Second Lien Exposure

The Volcker Rule’s ban on banks from buying collateralized loan obligations that invest in high-yield bonds may force some managers to include more second lien loans—a smaller, less liquid market with lower recovery rates—in order to up the arbitrage to equity on new-issue CLOs.

  • By Graham Bippart
  • 12 Feb 2014

--Graham Bippart

The Volcker Rule’s ban on banks from buying collateralized loan obligations that invest in high-yield bonds may force some managers to include more second lien loans—a smaller, less liquid market with lower recovery rates—in order to up the arbitrage to equity on new-issue CLOs.

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2 Goldman Sachs 1,798 4 14.88
3 BNP Paribas 1,434 4 11.87
4 Barclays 1,097 2 9.08
5 Morgan Stanley 1,094 2 9.06

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5 Barclays 13,499.53 45 7.13%