Active loan trading

Arbeitspapier

The collateralized loan obligation, CLO, market withstood the recent financial crisis with minimal losses compared to other structured asset-backed securities. Furthermore, the issuance of new CLOs is now above pre-crisis levels, prompting an understanding of what drives CLO performance. A central difference between CLOs and other structured asset-backed securities is that the CLO manager actively rebalances the collateral pool, by selling and purchasing loans, to enhance the CLO performance. We analyze such trades executed by CLO managers and document the importance of "active loan trades" - trades executed at a manager's discretion. We find that active loan sales are conducted at better prices than non-active sales and before rating downgrades. More active CLOs trade at better prices than less active CLOs, selling leveraged loans earlier and before they get downgraded. Finally, we observe that more active trading increases the returns to equity investors and lowers collateral portfolio default rates.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Danmarks Nationalbank Working Papers ; No. 127

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Asset Pricing; Trading Volume; Bond Interest Rates ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
• Subject: Financial markets ; Instruments

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fabozzi, Frank J. ; Klingler, Sven ; Mølgaard, Pia ; Nielsen, Mads Stenbo
• Event: Veröffentlichung
• (who): Danmarks Nationalbank
• (where): Copenhagen
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/202867
• Last update: 10.03.2025, 11:44 AM CET