Understanding Collateralized Loan Obligations (CLOs) and Risks they Pose

In this video I discuss the Collateralized Loan Obligation market, what CLOs are, how they are created, why CLOs are attractive for companies, asset managers, and institutional investors, what risks there are in the CLO market, and what Janet Yellen and Ray Dalio have to say about CLOs.

[@tobias2688]

I just discovered your channel and I wanted to thank you for the high quality content you provided. Hope you keep on making more.

[@LedCepelin]

Thanks, Court! I'm writing research on CLOs and counterparty risk, and you gave me some great ideas to look into!

[@PleuratD]

Thank you for this thoughtful and timely explanation of CLOs and the broader market context.

[@anthonymaylath2915]

Great video! Would love to see a video outlining how the tranches are priced in the secondary market. Interested to know more about the correlation impact.

[@anubhayadav8651]

Glad I found this video...great content!

[@FRYEGS6]

TRADER COURT EXCELLENT VIDEO. I AM JUST NOW WAKING UP AND CONNECTING THE DOTS. THANK YOU SO MUCH.

[@chenzhang8144]

Great video! Thanks for sharing.

[@utubifiable]

thanks for this, great explainer. what do you think of them now with all that has happened ? plus banks now have those on their balance sheets. next financial crisis?

[@duyguerten5084]

I am writing a report to EU's Advisory Board on Green mortgages. This is a great video and helped me a lot to understand CLOs..

[@tradercourt340]

Thanks for the kind words Duygu I'm glad you found this helpful!

[@duyguerten5084]

@@tradercourt340 your welcome...new to these topics but I find quite interesting...

[@sw5176]

Great video! Thanks a lot!

[@romangutin5876]

can't wait for this blow up

[@liberalerkapitalist465]

They not gonna Blow up(not right now but maybe in the near future) , the Fed is buying Corporate Bonds and ETF who replicates those Bonds. It could either lead to the point where banks get greedy like in 2007 and mix more Dogshit into these Tranches (because "heyy man the fed buys those crap bonds anyways so why not go full risk") putting more and more air into this bubble or nothing happens and the bubble pop is moved to the future.

[@TaylorGIrard11]

What's you updated view of the current CLO with the economy where it is? Also, where can we find individual CLOs and the businesses that make them up? Is there a way to actually see the loans inside of them?

[@NotYou-xk2bo]

Super informative video

[@steakcon]

Thanks Court Carlson! Now I know more about CLO'S maybe I should get the hell out of the ones I'm in.

[@tradercourt340]

I'm glad you found the video helpful James!

[@danielrombola6257]

Good video on a topic that is not discussed too much - would you mind sharing your reference of where you came to the conclusion of "all loans in CLOs are Junk rated.' Thanks!

[@tradercourt340]

I was able to find a great explanation of this at Guggenheim Investments. www.guggenheiminvestments.com/perspectives/portfolio-strategy/collateralized-loan-obligations-clo “Portfolios of bank loans, also known as leveraged loans, act as the collateral supporting CLOs. Leveraged loans are senior-secured loans to below investment-grade companies.” So I may have misstated when I said all loans were junk, since BBB rated loans are below investment-grade and just a notch above junk rated bonds. Good question Daniel!

[@darshanamhatre7827]

CLOs are not allowed to hold more than 7.5% of ccc rated loans, rest all are above CCC rated, majorly B rated, so to say all CLO. loans are junk is irresponsible at best, let's not create panics in the market, CLOs are pretty safe investments

[@danielrombola6257]

Thanks for the update Darshana and great point. I think people do not understand how crazy a default scenario would have to look like for AAA or AA tranches to lose $1 of principle. It’s easier to find flaws in something that one doesn’t understand!

[@riverdogsavioroftheunivers978]

@@danielrombola6257 this was the thought process that led to the GFC....watch the big short AAA rating was nothing more than a rubber stamp

[@51saurav]

80% cov-lite is exaggerated. Most of the CLO managers have maximum limit of 30% in the portfolio. These could be found in portfolio profile tests in the offering circular.

[@ProfessionalTycoons]

COVID just might be the fire match of this bomb.

[@evanalexan]

Speed -> 1.25x

[@jonoswald1983]

If corporations start defaulting due to decreasing earnings, won’t the whole stock market go down as well anyways? Not just CLOs?