The CARES Act and CLOs
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was signed into law. Among other things, Section 4003 of the CARES Act authorizes $500 billion of liquidity to support businesses, states and municipalities “related to losses incurred as a result of coronavirus.” Moreover, Treasury Secretary Mnuchin has said that much of this $500 billion will be leveraged in Federal Reserve facilities such that the total liquidity under Section 4003 of the CARES Act could be as high as approximately $4 trillion. It can be expected that a portion of this liquidity will take the form of loans to companies that are borrowers under loans held by collateralized loan obligation vehicles (“CLOs”). This, in turn, could ease the impact of the COVID-19 crisis on CLOs, possibly also leading to renewed CLO formation, which plays an important role in the U.S. economy by providing an important source of stable funding to U.S. businesses.
Mayer Brown’s Legal Update with further detail can be found here.