Proving their ability to deliver favorable returns and minimal defaults even through the recession, collateralized loan obligation (CLO) funds have resurfaced as lucrative investment vehicles for the private debt world. Antares Capital, Carlyle, Madison Capital, Trinitas Capital and Wellfleet have all raised new CLO funds, which provide lenders with long-term, stable, cost-effective, well-protected financing.
A CLO fund is a security backed by a pool of debt, often times low-rated corporate loans, where payments from middle-market business loans are collected and repaid to limited partners. The CLO structure had proven to be beneficial for fund managers until the financial crisis, when it got something of a bad reputation, due to guilt by association with mortgage-backed securities. Since 2012, CLOs have been making a comeback, in part due to their ability to provide a handful of varying risk-to-reward profiles. CLOs, as opposed to unitranche investment vehicles, also allow firms to access a broader network of potential limited partners, some of whom would not be able to invest directly in middle-market loans.