Fitch: Changing Market, Regulatory Landscape Emphasize Need for Strong CLO Managers
CHICAGO--(BUSINESS WIRE)--A changing credit and regulatory environment increases the need of strong portfolio management. Focus on credit selection and investment process, including experience managing loans and administering CLOs through a credit cycle, is paramount according to a new Fitch Ratings report.
Approximately $148 billion was issued by 93 different CLO managers during a very stable credit environment from January 2010 through December 2013. Credit surveillance and portfolio optimization will be keys to sustaining performance if the credit environment worsens causing an increased default rate for leveraged loans. Potential effects of regulatory provisions, such as the Volcker Rule and risk retention, could further alter the CLO management landscape significantly.
Accordingly, Fitch's CLO rating process includes an operational risk assessment and a review of the CLO manager's investment processes. A team of analysts specializing in asset manager reviews, structured credit/CLO analysis, and leveraged finance brings a cross-disciplinary perspective to the manager assessment, an important input into the CLO rating process.
CLO managers of Fitch-rated CLOs will, in Fitch's opinion, demonstrate sufficient standards of competency in the specialized areas of leveraged finance and CLO administration. Fitch then publishes a view of each manager which can be found at www.fitchratings.com.
Fitch recognizes there are differences among CLO asset management organizations in terms of size, operating strategy, and assets under management, among other organizational characteristics. A review of each manager requires careful consideration of the context in which it operates.
The full report 'U.S. CLO Management Landscape' is available at 'www.fitchratings.com' or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: U.S. CLO Management Landscape (Examining Strengths and Challenges Unique to Specific Ownership Types)