medium · Corporate Credit Analysis credit-metrics

A portfolio manager is assessing a CLO (Collateralized Loan Obligation) and notes that 'Excess Spread' is being diverted to pay down senior tranches.

What does this 'Trigger' event signify?

  1. The equity holders have exercised their right to call the deal early.
  2. An Overcollateralization (OC) test has failed due to losses or defaults in the loan pool.
  3. The underlying loan portfolio is performing better than expected and generating extra cash.
  4. The investment period has ended, and the manager is now in the wind-down phase.

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