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When the interest rates on the leveraged loans are

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When the Interest rates on the leveraged loans are higher than the weighted average interest rates on the CLO notes Trying to arbitrate between the pricing of the underlying assets in the secondary capital market and the yield on the transaction’s liabilities Centered around the special purpose vehicle selling notes to then purchase loans (Cash CLO) An established tranche system is created based on the loans Dynamically managed as these types of loans are often repaid early Investing further in new loans Require a collateral manager
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Balance Sheet CLO Banks use these types of CLOs to hedge their own loan positions, allowing them to reduce their regulatory capital requirements Bank selects a portfolio and places it in a CLO, transferring the credit risk to the capital markets This requires no capital manager This is achieved through a credit default swap (CD) (Synthetic) or through direct placement in CLO When loans are repaid, they can either gradually amortized or replenished with similar loans
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Synthetic Balance Sheet CLO These allow for the bank to maintain ownership of the loan in lieu of selling them to investors Use a CDS to “synthetically” acquire the credit risk attached with the CLO without having to sell to the market
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11.3: Each country has its own bankruptcy law, however the laws function in more or less the same way. In the United States there
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