The alchemy of CDO credit ratings

Efraim Benmelech; Jennifer Dlugosz

doi:10.1016/j.jmoneco.2009.04.007

The alchemy of CDO credit ratings

Efraim Benmelech^*, Jennifer Dlugosz

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › peer-review

108 Scopus citations

Abstract

Collateralized loan obligations (CLOs) were one of the largest and fastest growing segments of the structured finance market, fueling the 2003-2007 boom in syndicated loans and leveraged buyouts. The credit crisis brought CLO issuance to a halt, and as a result the leveraged loan market dried up. Similar to other structured finance products, investors in CLOs rely heavily on credit rating provided by the rating agencies, yet little is known about CLO rating practices. This paper attempts to fill the gap. Using novel hand-collected data on 3912 tranches of collateralized loan obligations we document the rating practices of CLOs and analyze their structures.

Original language	English (US)
Pages (from-to)	617-634
Number of pages	18
Journal	Journal of Monetary Economics
Volume	56
Issue number	5
DOIs	https://doi.org/10.1016/j.jmoneco.2009.04.007
State	Published - Jul 2009

Keywords

Collateralized loan obligations
Credit rating
Leveraged buyouts securitization

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.jmoneco.2009.04.007

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abstract = "Collateralized loan obligations (CLOs) were one of the largest and fastest growing segments of the structured finance market, fueling the 2003-2007 boom in syndicated loans and leveraged buyouts. The credit crisis brought CLO issuance to a halt, and as a result the leveraged loan market dried up. Similar to other structured finance products, investors in CLOs rely heavily on credit rating provided by the rating agencies, yet little is known about CLO rating practices. This paper attempts to fill the gap. Using novel hand-collected data on 3912 tranches of collateralized loan obligations we document the rating practices of CLOs and analyze their structures.",

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AB - Collateralized loan obligations (CLOs) were one of the largest and fastest growing segments of the structured finance market, fueling the 2003-2007 boom in syndicated loans and leveraged buyouts. The credit crisis brought CLO issuance to a halt, and as a result the leveraged loan market dried up. Similar to other structured finance products, investors in CLOs rely heavily on credit rating provided by the rating agencies, yet little is known about CLO rating practices. This paper attempts to fill the gap. Using novel hand-collected data on 3912 tranches of collateralized loan obligations we document the rating practices of CLOs and analyze their structures.

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The alchemy of CDO credit ratings

Abstract

Keywords

ASJC Scopus subject areas

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