medium · Debt Capital Markets bond-instruments-structures
In a CLO structure, what is the role of the 'Overcollateralization (OC) Test'?
- It requires the CLO manager to post additional cash collateral if market interest rates fall below the LIBOR/SOFR floor.
- It calculates the maximum amount of debt the CLO manager can issue against a single corporate borrower.
- It tests whether the interest income from the loans is sufficient to cover the interest payments on the tranches.
- It ensures the principal value of the loan portfolio exceeds the principal of the debt tranches by a set margin; if it fails, cash is diverted to repay senior investors.
Sign up free to see the explanation and track your rank →
More Debt Capital Markets bond-instruments-structures practice
- If a company has a leverage-based pricing grid and SOFR rises significantly while leverage
- What is meant by the 'bond floor' in the context of yield analysis?
- What is a 'call schedule' for a corporate bond?
- Which of the following describes a 'step-up' coupon in a callable bond?
- What is a 'deferred call'?
- What does a 5-year bond described as 'NC2' signify regarding its call protection?
- A 'make-whole' call differs from a standard 'fixed-price' call because the redemption pric
- If a bond has a 'Par Call' feature starting 6 months before maturity, what does this mean?