medium · Asset-Backed Securities clos
A CLO manager is in the reinvestment period. A 'CCC-rated' loan in the portfolio is trading at 60 cents on the dollar. The manager wants to sell it and buy a new 'B-rated' loan at 98 cents. However, the 'Class B OC Test' is currently failing.
Can the manager execute this trade?
- Only if the trade improves the OC test results, usually by increasing the total par balance.
- No, all trading is suspended immediately upon any OC test failure.
- Yes, because the reinvestment period allows for unrestricted trading regardless of test status.
- Yes, as long as the new loan is in a different industry than the sold loan.
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