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    Collateralised Loan Obligations

    CLOs are debt securities which underlying assets are pooled portfolios of loans or debt instruments issued by companies or private equity firms.

    After being repurchased, these loans are securitised and sold back into various tranches to investors with possible higher return than traditional loan investments.

    The traditional composition of a CLO portfolio includes between 150 and 450 loans from 20 to 30 different industries which are segregated into senior tranches (Rated AAA and AA), mezzanine tranches (Rated A, BBB and BB) both accounting in general for 90 % of the portfolio and the last element consist of the equity tranche which is riskier but with higher returns potential.

    What are the advantages of CLOs and their underlying securitised leveraged loans?

    • The CLOs offer greater flexibility through a broader product range and a well-diversified group of issuers
    • The CLOs tend to offer a steady frequency of interest payment (generally on quarterly or monthly basis)
    • The CLOs usually have high liquidity in terms of trading
    • The CLOs have a lower default rate in comparison to other non-diversified securitised products
    • The CLOs have a low interest-rate sensitivity due to their floating-rate nature in comparison to fixed rate instruments
    • The floating-rate nature of CLOs make them a good instrument to tackle inflation

    Luxembourg – Recent Modernisation of the Securitisation Law of 2004

    The new amendment to the Securitisation Law of 2004 passed on February 2022 has provided more legal certainty to market participants by allowing the securitisation undertaking itself or a third party acting on its behalf to actively managed a securitised portfolio under specific conditions:

    • The portfolio of securitised assets shall be composed of debt security, loans, debt financial instruments or receivables; and
    • The securitisation undertaking shall be financed through financial instruments which are not offered to the public

    Therefore, rather than classic alternative investment debt fund, the new law offers the possibility to create Luxembourg based securitisation SPV which are actively managed.

    Such SPV can issue debt instruments, shares or AMCs. Such instruments may also be tokenised.

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