S&P methodology change could increase CLO leverage

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By Will Caiger-Smith
07 Aug 2014

Recent tweaks to Standard & Poor’s loan recovery rating methodology could give CLO managers an incentive to choose the ratings agency over market leader Moody’s, which seized market share after a backlash last year over S&P’s treatment of covenant-lite collateral, say market participants.

S&P’s corporate ratings group has created two tiers within some of its loan recovery ratings, which estimate the strength of recovery in a default scenario and range from 1+ (highest potential recovery value) through to 6 (lowest). Recovery ratings of 2 to 5 will now be split into ...

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