Relative value leads CLO mezz tighter, but risk retention vexes

CLOs
By Will Caiger-Smith
13 Nov 2014

Pricing of mezzanine tranches in new CLOs has tightened in recent weeks as the asset class’s relative value has increased, and the pipeline of deals looking to get done before the Thanksgiving holiday is bulging. But as lawyers wrangle with the details of risk retention rules, investors say they are already discriminating between managers based on how they plan to deal with the rules.

Pricing of mezzanine tranches in new CLOs has come in by around 25bp in triple-B tranches and up to 50bp in double-B tranches compared with where it was three weeks ago, analysts said.

“It has a lot to do with simple relative value,” said a CLO analyst at ...

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