Hildene’s Mehra Sees 2020 as Testament to Viability of CLOs

The video discusses the CLO market, highlighting the unexpected recovery despite initial distress and loan defaults. It explains the protections offered by CLO structures, including hard subordination and excess spread, and the high default rates needed to impact mezzanine tranches. The video also examines liquidity in the market, the role of CLO managers, and investment opportunities in mispriced options. Finally, it covers the consumer credit market's response to government interventions during the crisis.

What was the unexpected outcome in the CLO market despite initial distress?

• Increase in loan defaults

• No change in market conditions

• Unexpected recovery in prices

• Complete market collapse

What are the two forms of protection offered by CLO structures?

• Hard subordination and excess spread

• Government bailouts and refinancing

• Interest rate adjustments and liquidity injections

• Credit swaps and bond issuance

What is the required loss percentage to impact mezzanine tranches in CLOs?

• 12% to 15%

• 5% to 8%

• 10% to 12%

• 15% to 20%

How have CLO managers improved portfolios during market volatility?

• By reducing liquidity

• By increasing loan defaults

• By trading out of distressed loans

• By holding onto distressed loans

What role did the government response play in the consumer credit market during the crisis?

• It caused a decrease in consumer savings

• It resulted in higher interest rates

• It provided unprecedented support and liquidity

• It led to increased loan defaults

What is a key investment opportunity in CLO structures according to the final section?

• Avoiding CLO investments altogether

• Focusing solely on senior tranches

• Monetizing mispriced options in CLO equity

• Investing in distressed loans

What was the market's expectation for losses based on?

• Current economic conditions

• Future market predictions

• The 2008 financial crisis experience

• Government policy changes