KBRA releases a recap of the Information Management Network’s (IMN) Annual Investors’ Conference on CLOs and Leveraged Loans, held on May 23-24 in Manhattan.

The conference, now in its 11th year, took place in person for the first time since 2019. Despite high excitement from colleagues and market participants meeting face to face, the overall tone was perfunctory at best given the geopolitical, macroeconomic, and sector-specific headwinds underpinning most discussions.

With the Federal Reserve continuing its efforts to engineer a soft landing for the economy considering rising prices, the subject of a potential near-term recession came up often. While there was no clear consensus on the likelihood, severity, or timing, several panelists posited that we could see a mild recession in the U.S., but it may be delayed until early to mid-2023. The impact of rising rates and the overall change to the yield curve is already causing a disconnect in the primary leveraged loan market—and with it, a pause in collateralized loan obligation (CLO) issuance. AAA and equity investors are trying to sort out an amenable capital structure given widening loan and tranche spreads. The arbitrage opportunity still exists, although it is shifting daily given the recent loan sell-off that has caused a decline in portfolio values. However, this may present a big opportunity for CLO equity in the long run if managers buy loans at discounted levels.

Click here to view the report.

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KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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