Research report

The secular opportunity for CLOs

Chief Market Strategist Troy Gayeski tackles the topic of CLO mezzanine debt and its potential benefits in a yield-starved environment, both present day and for the long run.

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January 28, 2022 | 10 minute read

Which securities are better than collateralized loan obligation (CLO) mezzanine debt for picking up yield and floating-rate exposure? In our humble opinion: None.

Earning a decent yield without too much risk of capital impairment or excessive duration continues to be one of the biggest challenges for investors. Of the few solutions present in the marketplace today, we believe many lie in private credit markets. But the primary one that features securities with limited liquidity is CLO mezzanine debt.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

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Troy A. Gayeski, CFA

Chief Market Strategist

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