CLO investors find silver lining in Libor’s demise

A backward-looking SOFR rate will reduce the asset-liability mismatch that sank CLO equity in 2018

sofr silver lining

Collateralised loan obligations (CLOs) are warming to the idea of using a compounded-in-arrears version of the secured overnight financing rate (SOFR) to pay debtholders, rather than waiting for a forward-looking term equivalent.

The loan market had been expected to hold out for a forward-looking SOFR term rate before moving away from Libor. But after being stung by a widening basis between one- and three-month Libor in early 2018, CLO equity investors are pushing for a more stable, backward

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