CLO Engineering Is No Match for Covid-19 as Payments Get Cut Off

Wall Street’s engineering was supposed to turn loans to junk-rated companies into relatively safe bonds known as collateralized loan obligations. As the new coronavirus slams the economy, some investors are finding that safety to be fleeting.

Interest and principal payments are at risk of being cut off for investment-grade CLOs in around a dozen different transactions totaling a few billion dollars, according to people with knowledge of the matter. The notes at risk have ratings as high as the A tier, well within high-grade territory, and were sold by name-brand money managers like Marathon Asset Management and Pretium Partners, ...