CHICAGO–(BUSINESS WIRE)–How the equity portion of a recovery distribution will be accounted for
is becoming more important to bondholders as additional defaults are
expected this year, Fitch Ratings says. Equity receives no credit in the
calculation of a CLO’s aggregate principal balance, or
overcollateralization (OC) ratios, until the manager monetizes the
equity position. Equity may be increasingly seen in restructurings in
the near term due to the distress in commodity sectors and noncommodity
issuers with high prepetition leverage, struggling business models and
declining enterprise valuations.
Typically, CLOs account for defaulted issuers…
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