Ratings Agencies To Launch First CLO Indexes
Standard & Poor's will release the first ever collateralized loan obligation performance index to the market next week, just ahead of a similar index to be offered by Moody's Investors Service. Both agencies are launching indexes in an effort to respond to investor demand for more transparency on deals and information comparing asset managers. The move, according to Stephen Anderberg, S&P ratings specialist, is an extension of the collateralized bond obligation index S&P already offers investors. "You're never going to have a liquid secondary market if you can't look at a deal before you invest in it," he said. Noel Kirnon, group managing director of derivatives and CMBS at Moody's, said his agency will be offering both a CBO and CLO index in the near future to compete with the S&P indexes. "We will launch our [CLO] index in a short time and it will be more comprehensive because our coverage is greater as we rate more deals," he said.
The new indexes are expected to be valuable tools for both CLO and CBO investors and managers as it will offer a direct comparison between deals structured in the same year. "This has significant value for us because they will enable insurance companies to make a direct comparison between managers," said Scott McNabb, investment v.p. of structured finance at Clarica Life Insurance. He said CLOs are a growing, dynamic asset class, but one of the weaknesses is the lack of available comparable performance benchmarks. "We spend a lot of our own time right now doing due diligence on these deals. It's important to have objective information out there," he noted.
Art Zimmer, portfolio manager at Oppenheimer Funds, thinks the new indexes will be just as helpful to managers pitching deals, especially since it will break down CLOs by vintage year. "Obviously it's difficult, if not impossible, to correctly measure 1997 and 1998 deals without separating them since the market dynamics were different," he said. "If you take a 1997 deal and make a comparison to another 1997 deal you have a pretty good apples-to-apples comparison." McNabb noted that separating out the years allows for a true asset manager comparison. "Performance benchmarks for asset managers are key. They [managers] either add or destroy value," he said.
The S&P CLO index will offer the same information as its CBO counterpart and it will benchmark 1997, 1998, 1999, and 2000 cohorts in a number of key risk areas such as defaults, sales and purchases, and overcollateralization ratios. Moody's plans to have similar information in its indexes.