8.28.20
After financial experts warned that the pandemic would cause the CLO market to go through its own crisis because of a wave of rating agency downgrades, new data found that this “wave” turned out to be only a small trickle. Earlier in the spring, three rating agencies announced that they would be placing around 2,400 bonds tied to CLOs in review for downgrades after the pandemic worsened economic conditions across all market sectors. However, a review of half of the changes made by rating agencies found that these downgrades were minimal or nonexistent. Many industry experts believe that these non-changes signal to market participants that the CLO market is recovering. “We thought things would improve, but things have improved even more than we thought. I think it shows the resiliency of the CLO structure,” said Wells Fargo CLO analyst, David Preston. However, others are not as optimistic showing concern that the ratings may not accurately reflect the risk the investors are taking.