hard · Private Credit & Debt
A CLO has a $500,000,000 portfolio of leveraged loans. If the Overcollateralization (OC) test for the BBB tranche fails because of several defaults, what is the immediate impact on the CLO equity holders?
- Equity holders must provide a capital injection.
- The management fee is permanently waived.
- The CLO is immediately liquidated.
- Cash flows are redirected from the equity tranche to pay down the senior-most debt.
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