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Economic and potential legal implications of collateralized loan obligations

Christopher Bennett, Ilan Guedj, Saurav Karki, and Karl Snow
Bloomberg Law
October 20, 2020

In the economic devastation of the Covid-19 pandemic, an increase in litigation could engulf the world of collateralized loan obligations (CLOs). Cases may involve CLO participants claiming that the performance of those securities is not merely a byproduct of broader economic misfortune, but a consequence of misconduct in the selection and management of the collateral or a failure to enforce contractual rights that amounts to a breach of contract or fraud.

Four Bates White authors—Partner Karl Snow and Principals Christopher Bennett, Ilan Guedj, and Saurav Karki—join with attorneys from Patterson Belknap Webb & Tyler to present a three-part series in Bloomberg Law. Their articles discuss the economic and potential legal implications of CLOs.

Part I, “CLO Structures, Risk, and Participants,” examines the key parties in CLOs—including the CLO manager, the CLO arranger, the trustee, and the investors (noteholders)—each of which has its own interests, risk tolerance, rights, and obligations. Part II, “Trends in CLO Collateral and Performance,” analyzes the rapid expansion of the CLO market following the 2008 financial crisis and leading up to the current downturn. It introduces some of the potential legal consequences of this activity and reveals that a perfect storm for disputes among CLO participants could begin to take shape. The third installment, “Potential Legal Claims among CLO Participants,” previews the types of disputes and potential claims that may arise among CLO participants.

Click on the article titles above to read the articles.

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