The Blurring Of Private Credit Funds And CLOs
We are increasingly seeing private credit fund proposals that include credit tranching of some of their capital structures, which makes them more comparable to collateralized loan obligations (CLOs).
A key differentiator in leverage between CLOs and alternative investment funds (AIFs) has been the presence of market value or refinancing risk. AIFs that effectively mitigate these risks may have credit risk profiles that bear similarities to middle-market CLO transactions.
Our rating analysis of private credit funds assesses the manager's ability and track record to manage risks, including credit, funding and liquidity, legal, operational, and counterparty risks. There may be specific mitigants to these risks in CLO structures, but they may come at the expense of less flexibility for the collateral manager.
ICR--Issuer credit rating. SPE--Special purpose entity. Source: S&P Global Ratings.
