YouSaid · the spoken record

Laila Kollmorgen

lines on the record: 97
first: 2024-09-11
most recent: 2024-09-11
sittings or episodes: 1
sources: podcast

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“Entire pension in Double Bees, you know, if I could. But what we have marked markup, we do have a benchmark return every single month, and we do want to make sure that we outperform. And as a result, what we do try and do is ensure that we are constructing portfolios that measure the market that we're currently in and the one we think we're going to be in. But the red flags always have to do with the track record of the CLO manager, the portfolio, so through that credit underwriting of the portfolio, we're able to determine how comfortable we are with that portfolio. And lastly, it has to do with that portion of the portfolio that's a liquid.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Without a doubt, the experience of the CLL manager is key. So we do take a look at their track record through all the various different cycles and really understanding their risk management, what do they do when things go wrong? That's always the question. What do they do? Their portfolio construction, their security selection, that's actually quite important. Two, how much of that portfolio is a liquid? It really is something we look at three, we take a look at how aggressive the portfolio manager is. Believe it or not, there are some aggressive portfolios out there, a bit more punchy. They're really looking for higher distributions to the equity tranche. We do sometimes different market environments. We shy away from them, really focusing much more of the top part of the cap stack rather than, say, the double Ps. This is despite the fact that I feel very comfortable with double bees in general. I would put my”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“A handful of investors in your private credit loan. That in fact works out for a lot of companies. I don't know if it works out ultimately for end investors, but it does work out for the companies.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. He used to be, we would say, that as a company, you had options to take a look at the high yield market and the leveraged loan market. So you need to know what was going on in the CLO market in order to understand the technicals and the leverage loan market. Now with private credit, a company has three different venues in avenues in order to borrow money. And each one has their positives and negatives. So for a company borrowing in the private credit market may in fact be the best way. There's so much money that has been raised for private credits got to be put to work. That means that the higher yields that you were seeing in private credit are now being compressed down to what you see in the BSL market. You don't have to deal with a ton of institutional investors. You only have to deal with, you know.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“So, in that way, private credit is in some way taking a slice of the pizza away from CLO investors. But one other very important regard, I believe private credit has benefited CLO investors because they're refinancing the riskiest.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“you have to make sure you get in to these working groups as early as possible and you have to make sure that you are able to defend your interests as an investor.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's definitely impacted CLOs. A lot of CLOs couldn't participate in those negotiations. So we've in fact had changes to our documentation such that CLO managers could participate in these negotiations when a company was doing poorly. We now have situations where you get what's known as a co-op and that can be problematic. So we make decisions as a firm as to whether or not we're going to stay in a credit and participate with the negotiations. But if it's a small position for us, we just sell out of it. It's not worth it. The risk to us is too big. If we have a large position and we can be part of the negotiations and sit at the table, that's something else. That's literally what you hear across the entire market. You have to be large enough to be able to participate.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Credit selection, you know, the opportunities that they have to them. They have the networks, they have the connections, they can do that really well. And others do it, you know, it's a miserable process. And you can really see that in the performance.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“And there's a lot of money goes to it. Things generally don't always work out so well because you also have teams and businesses that are put together because they want to take advantage of the ease of raising money to be deployed in the sector. And it doesn't mean that you always get the right teams or the right people or the right firm. I am sure that what you'll find whenever you see a bit of a mad rush to get into a new sector and raise money, you're going to find that it's going to underperform at some point. We recognize it's going to creep in maybe a little bit second liens. It can creep in in a variety of different ways. We understand that a manager may want to go ahead and add a little bit of juice to the portfolio. We understand that depending on the manager, they're going to express it in a few different ways. There are some managers that do it brilliantly. They do it such a good job.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, in and of itself, when you invest with a nice, I'm going to say, you're going to buy, you're drinking the Kool-Aid of that team. You want to make sure that when you give money to a direct lending middle market, private credit, you take a look at that team's track record. You take a look and see what is their track record in that space if you've got something, a team that's been doing a 10, 15, 20, 25, 30 years. They've got the networks, they've got the underwriting, they have the ability to structure the documentation and the covenants such that they're going to be an advantageous position when the things go wrong. They have a workout team. There's a variety of different ways to get comfortable. Those teams, I don't have real worries with, but as we know, whenever we start to see a hot sector.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Correct. And the more you have of this liquid portion of the market, the more difficult I think it's going to be to try to reduce your exposure because you can't get out of it. We find this with CRE CLOs. Again, highly concentrated portfolios, all in commercial real estate. It feels it doesn't give me a whole lot of comfort because as we know, commercial real estate is not exactly the most liquid and things go wrong. They can go very wrong. I find that that is the same case with regards to private credit or middle market or direct lending CLOs. They come in various different names very difficult to say one size fits all but it ultimately comes down to how liquid is the portfolio.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Illiquid and the BSL Broadly syndicated loan market, that's a loan to Verizon. It's a loan to a giant Royal Caribbean cruise line. It's a loan to Birder King. But then we're talking about middle market, which I think is pretty similar to private credits where a private equity firm has bundled together, you know, 10 yoga studios into a roll-up and they've borrowed money of perhaps another private equity firm that has a private credit arm has done that loan if that's packaged into a CLO, that's what you don't feel comfortable with because if the yoga studio loan, you're not so confident in the credit quality, the CLO manager has trouble selling it. The market for it is three people who made the loan.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“imagine if you can't get out of such a large percentage of your portfolio and things go wrong. So we're very much, you know, we're not very comfortable with purchasing portfolios that have large portions which are illiquid.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“You take a look at smaller loan facilities. Who owned the loan made to these companies? Generally, it's a club deal. Generally, it's three lenders. If you don't want to own it, you have to convince somebody else, the other two parties, to purchase it. If that company is going through difficulties, do you really think they want to buy it? Not really. And so when we take a look at CLO portfolios, one of the things we do is we look to see how much of the portfolio is in what we were going to consider an illiquid portion now some of that is maybe fine a few percentage but when we look at the documentation when we're involved in the primary market we in fact negotiate to ensure that that exposure to illiquid that illiquid portion of the portfolio is one that is a small amount that we're going to be comfortable with rather than say 10 or 15 or 20 of the portfolio”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“That has a secondary market, what happens when you don't have a liquid? Collateral pool, and you can't sell out of debt. So the value that a CLO manager brings is that when a credit starts to go bad, rather than waiting for it to drop down and price the 70 in selling it, they've done their credit analysis and they're able to say something, you know, either there's going to be a downturn in the sector, let's call it a cyclical sector, we think things are going to actually underperform, or we think that things are not going to go well for this particular company, whatever it may be. And as a result, what we're going to do is sell out of it now. So its current price on this is $99.5. We're going to sell out of it at $99.5. We'll find something else to buy to replace it at a comparable price level. That's what a CLO manager does. They're risk managing. So that's what you're supposed to do. There is an active secondary market and broadly syndicated loans. That's not necessarily the case.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Right. He's absolutely correct. So you actually say the liabilities just kind of matches up to around seven years because loans are issued with a seven-year maturity, which is why you have a five-year reinvestment rate. So your reinvestment period is five years. And what it does is that it limits a CLO manager from investing into new longer-term collateral. So it's designed literally to have those loans that were purchased, say, initially, but they have to fit within certain guidelines allows that to redeem. Those loans redeem. They pay off the AAAs, they pay off the, the manager can sell the portfolio in the market and pay off all the debt notes. That is absolutely correct. So you don't have a marked market vehicle. So the equity investor there is absolutely accurate. Now, we're talking about a collateral pool that's liquid.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“It's Burger King, and the asset liabilities are matched. In other words, they don't have the problem of Silicon Valley Bank where deposits could be called overnight and the duration of the assets they own are very long term. And then there's a bank run. So if that's the case and if that gentleman who I interviewed in, I believe December of last year was correct, why are you concerned about liquidity?”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“And I want to ask you about the importance of liquidity. I know you stress liquidity. It's obvious to me if you are a bank or you're of a leveraged fund, an open-ended fund where people can pull their money at any time, you want to own liquid assets. Because if you're levered five to one and half of your money, there's a bankrupt, half of your money goes out the door. You need to sell those assets. If you own illiquid assets that you have to sell in a falling market, that's a disaster, as many banks learned in 2008. However, I was speaking to a CLO investor, and I want to be clear, I don't think he was a CLO manager. He was an owner of equity tranches across the stuff. And he made the point that actually CLOs, the structure of CLOs, you know, it's unlikely or almost impossible for there to be a bank run because they issue five-year debt and they own five-year loans. So, you know, they issue five-year debt. Let's say you buy it and then he with that money buys five-year loans.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Correct, so you can still get a mark to market volatility just as I think anybody who held U.S. treasuries or mortgage-backed securities found out, you still have that. So if you have an increase in interest rates in our world gets its floating rate, an increase in spreads, that will lead to lower prices.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Sounds like you're relatively confident that even at the single B level, the realized losses at the end of the day will not be that high, maybe even negligible. But that doesn't mean that the single B, the price of the single B liabilities, which you own, could sell off in the same way. Defaults in high yield have been fine. But in 2022, there was a sell-off as implied defaults, you know, the market getting concerned, the market could always sell off. So the market could sell off even though at the end of the day it's going to be paid back.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Now, even the lowest rate is so let's say you have about 10% subordination to a single B. Again, doesn't touch the subordination much, a little bit, maybe here or there, but no, it really doesn't do much. So you still have that and you still have the excess spread that's being paid to the equity. So that's one of the reasons why CLOs have performed so well over the decades is because of the structure, because of the fact that a CLO equity does receive this 12 to 15 percent or more distribution annually, and the fact that below, you know, the single B, you've got about 10% subordination. So all of that combined together is the reason why you can have a bit of a default spike, and you're going to be just fine, even at the single B level.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“12 and 15 percent. Let's use 12. What it means is that the distribution to the equity tranche goes from 12 to 9.5%. It hasn't hurt your debt tranche at all.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's it. It's known as par loss. So that certainly is a risk. So what we do is we take a look at what managers do. Are they able to have par gain? Do they trade well? That's certainly part of it. The other is what's the level of par loss that you might have. And to give you an idea, position size in a CLO tend to be a 50 basis points, maybe 75. So it's quite diversified. You generally have a handful of positions that are around 1% or even one and a quarter percent of the portfolio. So let's pretend it's 1% and let's pretend all five of your largest position holdings default it. So that's 5% of your portfolio has defaulted. And again, we're using the 50% recovery rate example because it's easy. You've just lost 2.5% of your underlying portfolio. Now, the distribution to the equity tranche is anywhere between”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“So a risk for a CLO holder, the risk to the CLO is, of course, a default, but is it fair to say that also a risk is if there's a default, you get zero if there's no recovery, but there's a default, then you get rid of the recovery rate 60%, 30%, whatever it is. But sometimes what happened is the loan is distressed. It sells off to 50 cents on the dollar, and then someone else buys it, a private credit firm because they think they're, you know, geniuses, they refinance it at 70 cents. And then so the CLO loses 30 cents on the dollar. So is it fair to say that even more often a risk of an actual default is the CLO, the loan price is pricing in a default and then you sell it at a loss.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“If we were to get a default spike, again, it's going to hit some CLOs, but again, it's not going to hit your debt tranches. It'll hit the equity tranche. So really kind of depends where the life cycle is in that CLO, the manager, the portfolio, credit selection, et cetera. So for us, when we see a soft landing scenario, it's pretty much the scenario we have now. We don't see credit spreads widening significantly. We don't see that the stock market is going to sell off significantly. We may be kind of bump along for a while. If we find a scenario such as 2001, massive equity sell-off, credit spreads wide, they will.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“So we are already in, let's call it a slightly higher default environment. What does this mean for CLOs? Well, managers are doing a really good job. They continue to construct portfolios that are going to withstand that most managers are able to limit the number of defaults that they have in a portfolio and losses ultimately have been contained. When we look at the debt tranches, we don't see any real risk to the vast majority of transactions in the market. We also don't see a default spike. So even if we were to see a default spike, a la what happened in 2008, going up to about eight and a half, just north of 8.5%. What happens in a default spike is that you get the default spike and then the next couple of years you have almost no defaults. It out.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Now, so we do see it increasing. The historical default level in the leverage loan universe and high yield has been approximately 3% to put into context. So we are already above that. We're already seeing higher levels of defaults. So there's the official default rate. We've been seeing a lot of distressed exchanges. So when you actually include distressed exchanges, that number right now is approximately 3.5%. The historical default rate in high yield and leveraged loans is approximately 3%. We're already above the historicals. And we do anticipate that that number is going to increase to approximately 4 to 4.5%”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Of all any kind of loss are really going to be taken by the equity tranche. And it takes so much to see in defaults to even get some sort of dollar loss of principal at the double beans. It's very, very difficult. So you have to have two things happen. A poor CLO manager and you also have to have very poor security selection portfolio construction. So a few things have to line up. Not to say it doesn't happen, but you have to have a few things line up in order to get it default even at the double B level. So when we take a look at a soft landing scenario, we're not necessarily seeing much happening. Defaults do, our anticipation is that once we include defaults and distressed exchanges, we're going to be seeing that in the leverage loan space in that four to four and a half percent, which would be up from, say, approximately three and a half percent.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Investments that are going to benefit our investors. And by not limiting herself to just one rating, I think we're able to bring value to our investors. And I think that's one of the reasons why we really worked and really met when we spoke with Van Ec and they spoke with us. We were all very much on the same page with regards to risk management and investment opportunity set. We wanted to make sure that it worked very well for us and we are not just limited to say one rating.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“It does, you know, but I also think if you have to understand that there's different ways of managing money. And I understand that they maybe felt that they had to go ahead and purchase what was out there. I think I would have maybe made some different decisions, but I also like the fact that I don't have to buy something that's just one rating. You know, we have a different approach within the ETFs, you know, the ETF that we manage and the strategies that we run. We don't try to just limit ourselves. We like to find opportunities. Relative value can happen, believe it or not, between AAA and AAA. Relative value can happen in the investment grade portion of the CAF stack. And we work really hard in order to assess relative value and see where we think we can make.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“It well, that's something people should be aware of. And in conducting research, I did, there's the Van Ak product, I did look into other CLO ETFs and the inflows into one in particular of them have been enormous. So I can imagine if tens of billions of dollars are rushing into one product, those ETF managers, I mean, they have to do their job. They have to put money to work. And that's why they're paying for stuff that goes against your ethos, overpaying.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Exactly that. So what we've seen, I mean, high yield, you know, when we talk to our high yield portfolio managers, they were never concerned about the maturity wall. It has to do with the fact like everybody in 2020, 2021, they went out and borrowed a whole heck of a lot of debt at really low fixed rates. So high-yield companies are in fact absolutely fantastic shape as well as IG companies, you know, high yield IG countries went and borrowed a whole lot of debt for a really long time at really low rate.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Would be refinancing these loans. And in the same way, if someone has a 7% mortgage interest rates collapse, they want to refinance that at a lower rate. But the bank holding that mortgage does not want it. In this time, instead of interest rates going down, its credit spreads have been tightening. So credit has been rallying. And as credit rallies from 300 to basis points to 200 basis points, CLOs have been in the underlying companies of the leveraged loans have been refinancing and taking advantage of that, which is, I mean, it's always good to be paid back. But when you have a high spread instrument yielding more than current spreads, that's a good thing. And if you get refinanced and then now you're paying the current spread, that's suboptimal, but that's just part of the way it works. So CLO refinancing and leveraged loans refinancing have been very high, but newish, it's not newish.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“See the Federal Reserve cutting interest rates and companies are going to come back to the market. They're going to get more LBOs, more mergers and acquisitions, and you're going to get companies who are going to say, well, we want to take a look at either refinancing or debt or raising new capital for particular projects, et cetera. But they're only going to do it in a lower interest rate environment and high likelihood is that they're going to take a look at doing it in the leveraged loan market because we do anticipate the Federal Reserve to be much more likely to cut interest rates. So if you want to borrow money, you want to do so in the market where your interest rate is likely to decline over the next year than in the market where you're locked in for a few years.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Realistically, as they should, end-to-end, refinance their debt. That's what they did. Well, for CLOs, they were at the end of their lives. They couldn't participate in the refinancing. So they got repaid. So we have very high levels of loan repayment in CLOs. And when that happens, it's more advantageous for the CLO to be called. And that's what happened. So we have been finding that what looks like optically that the CLO market is going through an incredibly active year, record levels of primary issuance, record levels of refinancings and resets. But the reality is the size of the CLO market has remained almost unchanged. And that just happens to do with the fact that there isn't enough new leverage loan issuance in order to create CLOs. And that's really only going to happen once we actually...”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so CLO, when it's issued, has typically a two-year on-call and a five-year reinvestment period. So the manager is actively trading that portfolio in order to optimize the portfolio from a credit and spread perspective. When it gets out of the reinvestment period, the guidelines are it's time for the CLO to end its life is literally what it means. It's not meant to be a vehicle forever. And there are restrictions as to what the manager can do in order to reinvest proceeds. So it literally says the leverage loan is allowed to repay. And that's exactly what happened. What we found in the first half and all the way through August now of 2024 is the underlying leverage loan market said, wait a second, there's massive spread tightening and come.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“At any time, and we said some of these programs are on top of their game. And they were like, nope, that's it. We're going to go ahead and we're going to either refinance the deal. So they bring the coupons down to just like you would refinance your mortgage, you get a better rate. So that's one thing that managers were doing, CLO managers. The second is they were resetting terms. So if they felt they could, it's almost as if you issue a new CLO, but with new terms. So it's as if you said all of a sudden I can refinance and get a new 30-year mortgage. So, you know, that's a reset. And then the third is that we had the underlying leverage loan market was refinancing. So we end exit 2023, approximately 40% of the USDLO market was out of its reinvestment period.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“And part of what you mentioned is that the reason we sold this paper that was at 101 is because we sold out of it negative spreads. It was callable. And we said, that's crazy.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“So they were buying them in negative spreads. My experience has always been that if somebody's going to pay more for something than it's worth, you sell it to them.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Yes, so we're doing this to compare to floating rate product. So we're trying to say what the spreads may be. So it makes it a little easier to do a comparison between different asset classes. And as we saw spread the narrowing for all other areas of credit, we're taking a look at CLOs and seeing the same level, again, we're seeing spreads becoming much tighter. When spreads tighten in what we saw is that so many of these began pricing above par. And there was this demand that in fact made it so strong they were buying CLOs above par and at very, very tight spreads or even negative spreads. And that to us was a bit crazy.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“From investors, so it's new. And then you have investors like ourselves that are already invested and also getting inflows. So we're all taking a look at trying to stay invested. And credit has been doing well. As a result, you had, again, everything being bid up in price and spreads narrowing, whether it was IGOAS, high yield OAS, all of it really went, these spreads went much tighter.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I think this is where understanding the structure of CLOs really works. We were very much doing most of 2023, we're buying AAAs, AAAs, further down the CAPSAC, double the We were just buying a whole lot of stuff at great discount prices. And as we saw the market recover and we saw, we were talking about why is it we've seen this demand for CLOs, particularly the top part of the cap stack. We have seen demand from banks, insurance companies, ETFs in particular. So when ETFs get inflows, they obviously need to put the money to work, when you have banks that have decided they're tired of losing money in their fixed rate portfolios, when you have insurance companies that want to increase their allocations to CLO because of.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“But the CLO manager who manages the CLOs and chooses what to buy chooses which liabilities to issue, they redeem their liability at 100 because spreads have narrowed. Has that been happening? Has that been a risk, not a catastrophic risk by any means, but just a challenge when you buy something at 101 and you get refinanced at $100, it probably doesn't feel great.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“So, part of the reason. You are somewhat cautious. Again, I use that word. I don't think you use that word, is because Could be an economic softening, and obviously when there's an economic softening or even a recession that hurts credit is there also, and this is somewhat wonky, a risk of even if the credit is paid off, if you buy something at $101 and then spreads narrow and then they refinance you, the manager. So when we're talking about active managers, you are an active manager investing in CLO liabilities all the way from AAA all the way down, although I think a lot of what you do is in that higher rated portion, but mezzani.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“There yet, where we are really concerned. It's just marginal shifts. And as we see these marginal shifts both in the underlying credit quality of companies as we take a look at, again, what we see as being sources of volatility over the next few months, all of this kind of combines for us to be an environment where it's important to be nimble. Not that we have any real concerns. but we want to be more nimble. But again, it's not that that's our base case, but we do see that those probabilities exist. And as a result, it's just our experience managing money through the decades has really meant for us. How do you set yourself, your portfolios up, for what may come down in the next six months? And that's really what we're doing.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, when we talk about fundamental softening, it has to do with the fact that, again, we're part of a credit team. And our credit analysts are following earnings from companies. And so far, earnings have been okay, but when you're taking a look at what companies are saying and parsing through the language and you're saying, well, what's your outlook going to be like? How do you feel about sales moving forward over the next three to six months? And in general, there's more cautiousness from companies and that's translating into what we look at as again the higher for longer interest and rate environment we have been in we can need to take its toll and we're starting to see again it's not that we're seeing employment fall off a cliff just we're seeing slightly higher levels of claims just very slowly as we move up we're not”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“So there was a time where you were taking on more risk when you thought the CLO's spreads could tighten a lot. Now you think you don't see a lot of room for spreads to tighten at all. And as you write in the piece, you say CLO fundamentals have begun to soften. So explain why you are moving up in credit quality and you're taking less risk. And, you know, might I say you're even a little bit cautious on some of the greater credit risk as well as some CLOs and why you're being very selective.”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Double piece. So, what we've been taking a look at is it's hard for us to see spreads going much tighter, whether that's IG, high yield, or even certain aspects of CLOs. We do see higher geopolitical risks. We do see, and we're taking a look at layoffs. That's our canary in the coal line. We're really trying to see how unemployment changes. We know from the recent remarks by German Powell that he's taking a look and shifting the Fed's focus away from inflation, but to employment. So employment is going to be the next part of where the economy goes and where rates are going to go. And during this moment of what we see as increased levels of volatility. Coming up. It does mean that we have to be prepared just for portfolio construction to take advantage of when we think there are buying opportunities”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Is incredibly important, particularly as we take a look at the current market where we were talking about the duration trade, but we know that there is going to be either a soft lending, no landing, hard landing that's still out there. All of these probabilities of economic slowdown exist over the next six months to 12 months. So what we try to do is ensure that we construct the portfolios in a way that allow us to move up and down the cap stack. So when we want to de-risk, we move up. We use triple A's, we use AAAs, we use single A's in order to de-risk. When we are taking a look at adding risk, we go the opposite direction. We move down and we go into the single A's and the BBBs for our investment grade strategies. For those that allow it, we go down into the...”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT
“Seven, eight years at a minimum. So you have to understand that this is not a quick investment. It is one that is going to live and breathe with market cycles. It is a portfolio that's going to change because the underlying portfolio in a CLO is going to change because it's actively managed. Now you say, well, we just act. That sounds like does it mean that every single CLO is idiosyncratic? Yes, it is. It is technically a private placement. And as a result, every single CLO is different, has a different portfolio, has a different manager, has a different structure and different documentation. All of those lead to the fact that you should have a specialist who understands the leverage loan and the CLO market in depth, who makes these investment decisions. And when it's done properly, and I think that leads to why we believe security selection”
2024-09-11 · Forward Guidance · Structured Credit Maven Laila Kollmorgen on CLO’s Rally and Opportunity To Differentiate As Fundamentals Soften and Prices Climb | VanEck Fireside Chat #6 · IDENTIFIED FROM THE TRANSCRIPT