Credit FAQ: Anatomy Of A Credit Estimate: What It Means And How We Do It

The benign credit conditions before the COVID-19 pandemic coupled with prolonged low interest rates encouraged investors to pursue a variety of alternative assets for higher returns. Middle-market loans were among asset classes with increased investor interest as direct lenders used collateralized loan obligations (CLO) to fund these investments. Before the pandemic, default rates were low for middle-market entities, like their broadly syndicated counterparts (see "Middle Market Loan Performance: A Decade In Review," published Sept. 11, 2017). In addition to richer spreads on these loans compared to larger institutional loans, recent surveys show middle-market loans have better documentation than larger counterparts that collateralize broadly syndicated-loan CLOs. Middle-market CLOs also tend to have more tranche subordination than broadly syndicated CLOs. For middle-market

...January 14, 2021 The benign credit conditions before the COVID-19 pandemic coupled with prolonged low interest rates encouraged investors to pursue a variety of alternative assets for higher returns. Middle-market loans were among asset classes with increased investor interest as direct lenders used collateralized loan obligations (CLO) to fund these investments. Before the pandemic, default rates were low for middle-market entities, like their broadly syndicated counterparts (see "Middle Market Loan Performance: A Decade In Review," published Sept. 11, 2017). In addition to richer spreads on these loans compared to larger institutional loans, recent surveys show middle-market loans have better documentation than larger counterparts that collateralize broadly syndicated-loan CLOs. Middle-market CLOs also tend to have more tranche subordination than broadly syndicated CLOs. For middle-market loans, however, there is significant reliance on CLO managers and their ability to select assets...

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