CLO debt makes up more than 80% of all CLO liabilities in existence. Almost all of them are rated.
A credit rating is an opinion about the riskiness of a bond using a standardised scale. Many CLO investors use ratings as a way of showing to their clients or regulators that they are choosing investments with an appropriate level of risk.
The rating on a CLO note is derived from the credit rating of the individual loans and other assets in a CLO. If the underlying loans are not rated, the CLO needs to pay for shadow ratings on the loans.
CLO investors receive detailed and somewhat standardised reports on the performance of the deal. The most frequent of these “trustee reports” is the monthly report which lists all a CLO’s assets, details its recent purchases and sales and measures the extent of its compliance with all tests.