CLO Investors Push Back on Use of ‘Snooze Drag’ Tactic (1)

Managers of collateralized loan obligations are facing a backlash from some of their investors over the use of a tactic that has the potential to tie up money in the vehicles for longer than planned.

Buyers of CLOs are looking to insert language into new deal documents to restrict managers’ ability to participate in loan extensions at a time when the CLO should be returning capital to investors, according to several lawyers who advise on European transactions. The provisions are expected to become market standard going forward, they said.

At issue is a workaround in the leveraged finance market known ...