Animal Spirits Podcast Talk Your Book: The CLO Playbook
May 5, 2025
Shiloh Bates, Partner and CIO of Flat Rock Global and author of "CLO Investing," joins the conversation to discuss the intricacies of collateralized loan obligations (CLOs). He explains how CLOs perform during recessions and the factors to consider in CLO equity investing. The talk covers the dynamics of private credit, highlighting investment strategies amidst economic uncertainty and the importance of selecting top-performing CLO managers. Bates also shares insights on the education needed for navigating risks while maximizing income opportunities.
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High Income, Low Volatility Explained
- CLOs offer high income with low price volatility, appealing during volatile markets.
- This is due to the structure and assets underlying CLOs, providing steady returns with limited drawdowns.
CLO Equity and Recession Dynamics
- CLO equity invests in a diversified pool of loans, typically rated single B with about a 2% default rate.
- In recessions, loan prepayments at par and discounted new loans can offset higher losses, stabilizing returns.
Understanding CLO Equity Role
- CLO equity represents ownership in a pool of senior secured loans made to private equity deals.
- Equity holders receive high quarterly distributions but bear first loss risk if loans default.