CLOs come in different flavours, although vanilla — those CLOs backed by large-cap corporate loans — is the one that has proved timeless. However some CLO market participants are starting to develop a taste for infrastructure CLOs.
The regular corporate credit CLO market — all $1.53trn of it — has been running for 30 years, but its off-shoots have generally not been able to scale anywhere close to that. Emerging market CLOs have shown flashes, with ICE Canyon a pioneer in this space; but high yield exposure (and lower recoveries versus leveraged loans) have not been supportive of growth. Then there’s managed-synthetic CDOs, which had a moment in the late 2010s, but crafting portfolios with enough yield and liquidity in the underlying CDS made this an extremely difficult endeavour.
A CLO is only as good as its underlying asset class. In this regard, infrastructure CLOs offer a lot of promise with infrastructure loans generally displaying lower default rates and higher recoveries versus corporate loan CLOs. Tie in security in the form of tangible assets, or projects which need financing, and suddenly the clamour for infrastructure CLOs becomes even more clear.
“A lot is going on in the infrastructure space”, says...
