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Alternative Market Briefing

Sancus Capital's Chernova pioneers a new way forward for CLO refinancing

Monday, July 01, 2019

Bailey McCann, Opalesque New York:

Investor interest in CLOs is on the rise and Olga Chernova, Founder and CIO at Sancus Capital Management is working to make the market more transparent. Alongside her work at Sancus, Chernova developed a process that is designed to make CLO refinancing easier and open to more market participants.

The process, called 'applicable margin reset' (AMR) uses a modified dutch auction to set a new interest rate for eligible CLO securities. Once a CLO has exited its non-call period, usually two years after the CLO has been created, equity holders can improve returns by refinancing to a lower interest rate. Refinancing volume has grown significantly in recent years as the size of the CLO market has grown. As investors continue to pile into hot areas like direct lending or middle market credit which use CLOs, volume is likely to remain high.

Chernova has created an independent company called KopenTech which will manage the auction process on its platform. After the auction is finished the results are made public.

According to Chernova, the modified auction process is open to the broader market and can lead to better refinancing rates. Underwriters and ratings agencies are not required, which can cut down on the cost of refinancing as well. By using an auction, market participants can plan refinancings, resets, and new issues with more information. Auction data can also be used to understand which broker-dealers bring the mo......................

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