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Overview

A collateralized loan obligation (CLO) is a security backed by a pool of debt. These are typically corporate loans that have low credit ratings, or leveraged buyouts made by a private equity firm to take a controlling interest in an existing company. A CLO is similar to a collateralized mortgage obligation (CMO), except the underlying debt is a different type and character: a company loan instead of a mortgage. With a CLO, the investor receives scheduled debt payments from the underlying loans and therefore assumes most of the risk if the borrowers default. In exchange for taking on the default risk, the investor is offered greater diversity and the potential for higher-than-average returns.

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Example reference data screens, trade screens, and reports are attached:

• CLO Examples.xlsx

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Entity Setup

Entities trading CLOs do not require any special setup.

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Reference Data

Storage & Configuration

Eagle models CLO security master files (SMFs) as single rows in Data Management.

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• Processing Security Type (3931) = DBFBFB (Factor Based Debt Instrument)
• Price Multiplier (18) = 0.01
• Quantity Scale (19) = 1.00
• Issue Price (69) = 100
• Maturity Price (42) = 100
• Coupon Type (97) = X (Floating Rate)
• Floating Rate Fields
  • First Rate Reset Date (10911): same as First Coupon Date (473)
  • Reset Frequency (476): same as Payment Frequency (472)
  • Reset Look-Back Days (10547): # of days prior to the floating rate reset to grab new floating rate
    • Reset Look-Back Days Type (5075): measure look-back in B (Business) or C (Calendar) days
  • Fixing Date Business Center (16407, V15 R2.18): select calendar used for floating rate resets, which may be different than the calendar used for payment dates; this calendar will be used in lieu of the main Business Calendar when applying the Reset Look-Back Days for fixing dates
  • Underlying Security (1347): floating rates will be automatically retrieved from this underlying index
  • Spread/Index Offset (215): spread above or below the floating rate, entered in basis points (0.55% = 55)
    • When a floating rate (0.25%) plus negative spread (-55 bps) goes negative (effective rate = -0.3%), accruals and coupons are posted in the appropriate direction

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Trade Processing

Buy

Trades are entered using the Book Trade module once entity and reference data have been configured. Enter the appropriate entity, security identifier, and trade (35)/settle (37) dates and click Submit to query for the security. Right-click it and select Open > Buy or ShortSell. The list below contains all fields required to book a CLO trade.

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• V17 & Above: Accounting Center > Processing and Exceptions > Global Processes > Expirations & Maturities > Run Mature Process
• Prior to V17: Global Process Center > Expirations > Mature

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Accounting

Once a CLO trade is booked, it will be picked up in Eagle’s global workflow. Daily accruals and periodic coupon payments are generated as part of the earnings process, Accounting valuation is calculated when posting unrealized gain/loss, and Data Management valuation is calculated in the STAR to PACE push.

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Set Corporation Action Begin (220) & End Sweep Date (221) to a range that includes the Sweep Date entered on the announcement.

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Reporting

STAR to PACE (S2P)

Almost all reports in Eagle leverage data from Data Managament, which is populated by the S2P process. This will be scheduled as part of the daily workflow, but can also be triggered manually as described in the Accounting section.

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Data Management Reporting

OLAP reports provide the maximum level of customization, allowing any column in Data Management to be pulled into a report. These go beyond the Eagle Accounting Grid Reports because they are not limited by core queries, can support multiple sources and various types of calculations, and provide drill-down functionality based on user-defined groupings.

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Performance

The performance toolkit has full functionality to calculate market value-based performance for CLOs using data supplied by the S2P process. Risk and performance attribution features are available to analyze CLO performance.

Automation

CLO SMFs and trades can be loaded through the standard Message Center streams. The SMF must be loaded prior to the trade (trades do not spawn SMFs). Refer to the Supported Generic Interfaces guide for more information.