The Alchemy of Cdo Credit Ratings

43 Pages Posted: 20 Apr 2009 Last revised: 28 Aug 2010

See all articles by Efraim Benmelech

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Jennifer Dlugosz

Washington University in St. Louis - John M. Olin Business School

Date Written: April 2009

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 that gap. Using novel hand-collected data on 3,912 tranches of Collateralized Loan Obligations (CLO) we document the rating practices of CLOs and analyze their existing structures.

Suggested Citation

Benmelech, Efraim and Dlugosz, Jennifer, The Alchemy of Cdo Credit Ratings (April 2009). NBER Working Paper No. w14878. Available at SSRN: https://ssrn.com/abstract=1391825

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jennifer Dlugosz

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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