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