Fed rate rise to hit CLO equity

摘要

An increase in US interest rates will hit returns for equity investors in CLOs, in another blow for a market grappling with regulation and an estimated 36% drop in issuance in 2016. The Federal Reserve raised interest rates Wednesday, which means returns for CLO equity holders will drop as the cost of liabilities increases, but loan yields will stay static thanks to 'Libor floors' on the leveraged loans they invest in. Libor rates will move higher when the US raises interest rates, Joseph Abate, a money market analyst at Barclays, said. Although floating rate loans pay a spread over Libor, Libor floors guarantee a minimum rate for loan investors.