The Trend of Tranches and Transactions: Examining the Impact of COVID-19 on Collateralized Loan Obligation Issuance

Abstract

This paper empirically examines how the COVID-19 pandemic and ensuing monetary policy decisions affect issuance in collateralized loan obligations. We expect statistically significant negative effects on collateralized loan obligation issuance volume and the number of executed collateralized loan obligations transactions due to the magnitude of the COVID-19 macroeconomic shock on structured credit markets. We expect statistically significant positive effects on collateralized loan obligation issuance volume and the number of executed collateralized loan obligations transactions in 2021 due to near zero rates maintained by the Federal Reserve. We then perform fixed effects regressions to determine key indicators of collateralized loan issuance activity. Hypothesized results are confirmed, as COVID-19 and low rates prove statistical significance in affecting collateralized loan issuance volume and the number of executed collateralized loan obligation transactions. These results are important when considering potential future macroeconomic shocks and their influence on collateralized loan obligation issuance activity.