Clauses allowing managers to lend their portfolio’s assets have laid dormant in the indentures of CDOs for years. Activity is finally picking up because even relatively well-performing assets such as leveraged loans, for example, are not yielding as much as managers had hoped.
According to a structured credit strategist at another US dealer, who asked to remain anonymous, several CDO managers have started lending out securities from their portfolios this year to dealers other than Goldman.
Aside from risk management of existing loan portfolios by banks, borrowing the loans could give credit derivatives dealers a valuable extra source of liquidity for shorting credits to hedge their default protection selling.
The week on Risk.net, July 7-13, 2018Receive this by email