Collateralized loan obligations, which are securitized bonds made of loans sold by high-yield companies, had all but disappeared during the credit crisis.Matt Quinn wondered yesterday
what has changed when it comes to banks' philosophies on risk taking as Bloomberg published a headline that read "JPMorgan Poised to Lead CLO Comeback After Record Loan Rally."
I agree that we seem to be returning to the old ways rather quickly. Not long after Mr. Quinn pressed the send button, another bank, Wells Fargo -- which is, by the way, also the latest bank to repay TARP money -- helped arranged a $275 million CLO, the largest sold by a fund in the U.S. since January.
Guggenheim Partners bought most of the CLOs, which was made of middle-market loans issued between 2005 and 2009, according to the Wall Street Journal
. NewStar Financial is managing it.
"This represents a significant opening of credit provided by the capital markets," Guggenheim chief investment officer Scott Minerd told the WSJ. "The transaction was structured utilizing updated published rating agency methodologies. The offered notes can withstand significant levels of defaults and provide increased levels of credit enhancement when compared to historical CLOs."
So to sum up, the new CLOs are better because they are less risky and structured according to credit ratings agencies methodologies. I feel like I have heard that already not that long ago.