The case for investment grade CLOs

What are leveraged loans?

About five years ago in episode 205, we discussed a rather obscure asset class that goes by multiple names. The names include leveraged loans, syndicated bank loans, floating rate loans, or senior loans. These are loans issued by banks to non-investment-grade companies, and those loans are then sold or syndicated into the market. 

Buying and selling of these loans is not as smooth as it is to purchase a stock. The settlement time for a transaction to go through can be upwards of 20 days, compared to two days for most securities.

Leveraged loans are called senior loans because they have to be paid before any other debt that the company may have on its balance sheet. Another advantage of these leveraged loans is they’re variable rate loans. They pay an interest rate that is tied to short-term interest rates. They pay more, there’s a spread above the short-term base rate that is used to calculate the yield, but because it’s variable rate, there is no interest rate risk. These loans don’t go down in price when interest rates increase. 

Volta Finance Ltd (LON:VTA) is a closed-ended limited liability company registered in Guernsey. Volta’s investment objectives are to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.

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