In “CLOs Today: High Risk, Low Reward?,” the authors examine the landscape for collateralized loan obligation (CLO) investors, highlighting a challenging environment marked by historically tight underlying loan spreads and elevated default rates. Unlike previous loan repricing cycles that coincided with strong credit conditions, today’s market presents compressed income and increased credit risk. The article explains that low recovery rates and a convergence toward conservative portfolio management styles have driven spreads lower, diminishing the risk premium for taking on additional credit exposure. As a result, the authors argue that the recent playbooks in CLO investing might no longer apply, and investors should exercise caution with lower-rated tranches and equity while considering the relative value offered by AAA CLO tranches in the current market context.
Mr. Mezyk joined DoubleLine in 2016 as an Analyst focusing on CLOs and other structured products, later transitioning to his role as Portfolio Manager. Prior to DoubleLine, he was a Structured Products Analyst at American Capital where he invested in CLOs for their Leveraged Finance Group. Previous to American Capital, Mr. Mezyk was an Analyst in PNC Financial Services’ Asset Backed Finance group where he focused on structuring different ABS transactions. He holds a BBA from the University of Notre Dame and is a CFA® charterholder.
Mr. Garza joined DoubleLine in 2009. He is a Portfolio Manager overseeing both the Macro-Asset Allocation and CLO teams. He is a permanent member of the Fixed Income Asset Allocation and the Structured Product Committees. Prior to DoubleLine, Mr. Garza was a Senior Vice President at TCW where he held several positions over his tenure there. Prior to TCW, he worked at Union Bank of California in the Commercial Banking Group where he was involved with corporate loan underwriting. Mr. Garza holds a BA in Business Economics from the University of California, Santa Barbara and an MBA from the Anderson School of Management at the University of California, Los Angeles.
