Macro Hive Conversations With Bilal Hafeez

Shiloh Bates on Demystifying CLO Myths

Dec 8, 2023

Shiloh Bates, CIO of Flat Rock Global, discusses everything about CLOs, from definitions to their performance. He shares his career journey, explains cash flow in bankruptcy, and differentiates CLOs from HY bonds. Bates also talks about writing a book on CLO investing and the benefits of reading practitioner-authored books.

41:04

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Shiloh Bates

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Quick takeaways

CLO equity tranches, particularly double B notes, offer higher returns with higher risk compared to other asset classes.

Prioritizing diversification and thorough due diligence are key to successful investments.

Deep dives

CLOs and the Self-Healing Mechanism

CLOs, or collateralized loan obligations, are a type of investment that functions like a simplified bank. They consist of senior-secured loans to US businesses, created in leveraged buyouts. The loans are floating rate and are financed by issuing long-term debt with different ratings. CLO equity tranches, particularly double B notes, offer higher returns with higher risk compared to other asset classes. What sets CLOs apart is their self-healing mechanism, where loans that default are balanced by discounted loans that are constantly bought into the CLO. Despite the negative impact of events like the global financial crisis and COVID-19, CLO equity has shown resilience, offering investors favorable returns.

Introduction

2min

Educational Background and Career Transition to Finance

1min

Luck, Loans, and the Journey to CLOs

4min

First in Line: Understanding Cash Flow in Bankruptcy

5min

The Differences Between CLOs and HY Bonds

22min

Writing a Book on CLO Investing While Managing Their Day Job

2min

The Benefits of Practitioner-authored Books and the Importance of Diversification

5min

Shiloh Bates is the Chief Investment Officer of Flat Rock Global in 2018 – a $750mn credit manager. Prior to joining Flat Rock Global, Shiloh was a Managing Director at Benefit Street Partners, and Head of Structured Products at BDCA Advisor. During his 20-year career, Shiloh has worked for several CLO managers and invested over $1.5 billion in CLO securities. He is the author of the recently published ‘CLO Investing – With an Emphasis on CLO Equity & BB Notes’. This week's podcast covers everything to do with CLOs, from definitions throught to their evolution and performance in today's landscape.

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