The Federal Reserve’s Senior Loan Officer Survey on Bank Lending Practices reports that more banks have tightened credit lending standards for residential, commercial and consumer loans and are also less willing to make consumer installment loans.

As COVID-19 continues to damper the US economy, some investors are concerned that the safety found in Collateralized Loan Obligations (CLOs) are fleeting. The economic downturn had increased the risk of interest and principal payments being cut off for some of these investment-grade CLOs and the notes at risk have ratings as high as the A tier.

Extraordinary times call for extraordinary measures. And the Fed continues to respond appropriately. On April 9, the Federal Reserve once again drew on its full range of authorities to expand and establish lending facilities to provide up to $2.3 trillion in loans to stabilize households, communities and businesses of all sizes during the pandemic crisis and to “ensure that the eventual recovery is as vigorous as possible”.

COVID-19, social distancing, a declaration of a national emergency, and an oil price war all arrived in the U.S. in March. SFA takes a look at the potential impact of recent events on the CLO market.