CLO is a kind of securitized products which build CLO
tranches based on cash flows from a leveraged loans pool. In order to analyze
the performance of CLO tranches, we need to know the information of the
leveraged loans in the pool. These loans’ Probability of Default (PD), Recovery
Rate (RR), Default Correlations and Prepayment rates, are needed for us to have
a better understanding of a CLO deal.
Here I would like to introduce a Moody’s methodology [1]
on CLO analysis. The methodology is aimed to give a rating to CLO tranches.
Since prepayment do not affect the credit rating, so no prepayment is discussed
here.