![]() ![]() As of 2019, the level of CLO issuance neared $120bn in the US, whereas in the EU they were close to Euro30bn. This article explains this phenomenon, analysing in particular how CLO structures morphed during the last decade and how this new transactional innovation facilitated a return to dangerous levels of leverage. This article argues that the seeds of this fragility, while being exposed by the pandemic, were sown earlier, in the post-2008 years, through the revived synergy of three elements of the financial system: private equity firms ascending the role of ultimate intermediaries in the system of private debt creation leveraged loans becoming the new asset class that replaced what mortgages represented in the pre-2008 years and collateralised loans obligations (CLOs) which in some ways replicated the function of CDOs as mechanisms of private debt creation. The Covid-19 pandemic and the subsequent worldwide economic slowdown have exposed the fragility of the financial sector, among others. ![]()
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