Clo Warehouse Agreement

Historically, the Manager of a Guaranteed Credit Commitment (“CLO”) has often arranged a credit facility with a bank (probably the insurer for the re-release CLO project) to provide short-term financing for the acquisition (or “storage”) of business loans prior to the launch of the OLC. Securing storage equipment remains a popular way for the manager to start the portfolio before launching a CLO transaction, and provides the manager with more options in the time and speed of the startup process. Directors should be familiar with potential storage opportunities and sources of this funding. Recently, some CLO managers have managed to introduce new CLOs without relying on a storage facility. These transactions show that a storage center is not a “must” to launch a new CLO. However, the benefits of a well-structured storage facility remain relevant to managers looking for more options to manage the start-up process and guard against challenging market conditions. A storage facility can give the manager more time to choose credits for the portfolio, spread some of the risk among other parties during the start-up phase, and allow for faster asset acquisition based on capital availability. The cost of a storage facility reduces the overall economic viability of Operation CLO by adding additional interest costs during the start-up period. Managers should carefully assess cost reductions and consider how best to mitigate market volatility risk to decide whether to seek storage financing. Storage period: A storage service provider funds the acquisition of loan-financed credit assets by the clo manager.

The storage period usually lasts six to twelve months. The storage loan should be repaid with the proceeds of the OLC issue. Some banks have begun to renovate the structure of storage facilities and create new types of institutions that can reduce the risk of market value born by the administrator. The use of cash-flow techniques similar to those used in clo transactions, such as over-protection ratio tests. B, allows managers of new “par-iques” storage structures to offer managers a financial instrument better suited to their overall capitalization and business structures. Among the characteristics of these developing structures, CLOs often begin with a storage phase during which the manager accumulates the Portolio intial.