Bankruptcy and Restructuring Outcomes of CLO-held Loans: The Role of CLO-Bank Relationships

Loans held by CLOs are often originated by banks with whom CLO managers have past trading relationships. Consistent with CLOs obtaining valuable private information with the help of these relationships, we find that firms whose loans are initially purchased by bank-related CLOs are less likely to experience negative credit events in the next one to three years, compared to other similarly risky firms. Borrowers of loans held by bank-related CLOs are more likely to successfully restructure using prepackaged Chapter 11 filings in the event of subsequent bankruptcy. The benefits of CLO-bank relationships incentivize CLOs to further develop such relationships through repeated transactions.