The market for Collateralised Loan Obligations — those sliced and diced business loans — may have only just reopened, but boy, has it evolved!
News came on Tuesday that JP Morgan is revising the $400m CLO arranged for Apollo Management; reducing the triple A-rated tranche by $1.75m, and increasing the triple B-rated tranche by $4m. The reason, presumably, is investor demand for those riskier, higher-yielding, slices. The structure should now look like this:
ALM Funding 2010-3 is the latest in a series of CLO deals this year, with the market waking up after a long credit-crunched hiatus. But as the FT noted back in May, and the ALM CLO hints at, the structure of these new deals is rather different.
For something like the COA Tempus CLO, which reopened the market in March, the percentage of triple A-rated debt in the deal total is lower than at the height of the credit boom. Many of the deals also come with extra yield to boot, even on the top-rated tranches. For instance, the yield on an earlier Apollo-managed CLO (ALM Loan Funding 2010-1) offered 170 basis points over Libor for the AAA-rated tranche. Compare and contrast that with pre-crisis yields as low as 20bps over Libor.
Some sample, (rough) 2010 CLO structures below:
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