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The Alchemy of CDO Credit Ratings

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  • Efraim Benmelech
  • Jennifer Dlugosz

Abstract

Collateralized Loan Obligations (CLOs) were one of the largest and fastest growing segments of the structured finance market, fueling the 2003-2007 boom in syndicated loans and leveraged buyouts. The credit crisis brought CLO issuance to a halt, and as a result the leveraged loan market dried up. Similar to other structured finance products, investors in CLOs rely heavily on credit rating provided by the rating agencies, yet little is known about CLO rating practices. This paper attempts to fill that gap. Using novel hand-collected data on 3,912 tranches of Collateralized Loan Obligations (CLO) we document the rating practices of CLOs and analyze their existing structures.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14878.

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Date of creation: Apr 2009
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Publication status: published as Benmelech, Efraim & Dlugosz, Jennifer, 2009. "The alchemy of CDO credit ratings," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 617-634, July.
Handle: RePEc:nbr:nberwo:14878

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