Triple A investors block CLO discount rule change
Triple A investors in three European CLOs are understood to have rejected their manager's initial attempts to get rules on discount purchases changed
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I would not view a potential agreement between AAA investors and the manager as a guarantee against downgrading of the notes. The rating agencies do not necessarily have the same view as the managers of par-building purchases of assets at 50 cents. Perhaps the talks involve, less publicly, the rating agencies and their view of the proposed amendments?
The reason why a AAA investor might agree a deal is that if they do not provide the manager the ability to trade with some flexibility to prevent par erosion and to rebuild par, the AAA notes will be downgraded. When they are downgraded, AAA investors will take mark-to-market hits to their book, their AAA notes will become even more illiquid than they are today, and (I'm assuming the holders are banks or insurance companies) they are likely to need to post more regulatory capital against the position. The only benefit they get to blocking the vote is a diverson of interest cash flows which will no where near add up to the capital charge, let alone the MtM hit.
Wy would the AAA investor agree to such a change? Rules were agreed from the start and it seems rich to ask for such a change when AAA investors invested at 25 over Libor at the time. Unless they can get some financial or strong structural benefit in exchange, it's hard to see why AAA investors would agree to such a rule change.
If the manager can have a decent dialogue with the AAA investors, they should be able to work out a compromise that will allow some form of amendment to pass.
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Comment by: Anonymous. Posted 15 years ago [2009-03-09 15:27:11]