Cloud 9fin Tranche Talk — Tariff volatility offers opportunities for CLOs
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Apr 15, 2025 In this insightful discussion, Matt Maxwell, Head of US Loans at Carlyle, and Lauren Basmadjian, Global Head of Liquid Credit at Carlyle, share their expertise in navigating the complexities of tariff-induced market volatility. They explore how CLO managers can capitalize on dislocation opportunities and sector-specific risks. Insights on picking the right assets amidst LME risk, as well as strategies for mitigating vulnerabilities in retail and auto sectors, offer a fresh perspective on turning turbulence into opportunity.
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Mitigating Tariff-Induced Sector Risk
- Mitigate tariff risk by underweighting vulnerable sectors and maintaining cash reserves.
- Analyze companies through multiple scenarios to spot mispriced loans for buying or selling.
Capitalizing on Volatility for Pull-to-Par Trades
- Use current volatility to leg into discounted loans and assemble performing credit portfolios at mid to high 90s prices.
- Prepare for temporarily wider asset spreads and lock in long-term liabilities.
Economic Uncertainty Heightens Downgrade Risks
- Unlike 2022, current economic uncertainty and more recession risk suggest increased downgrades and higher LME activity.
- Credit stress and workout complexity will likely rise under present conditions.