medium · Debt Capital Markets bond-instruments-structures
A CLO equity tranche is often referred to as a 'leveraged bet on the credit spread'.
Why is this?
- The equity tranche is guaranteed by the collateral manager's balance sheet.
- The equity tranche receives the residual interest income after the debt tranches are paid.
- The equity tranche is senior to all other tranches and receives the highest fixed coupon.
- The equity tranche's price moves inversely with credit spreads.
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