You are making an argument of CLO’s having more risk than CDOs by using the following from Fartnoy: > Later this summer, leveraged-loan defaults will increase

You are making an argument of CLO’s having more risk than CDOs by using the following from Fartnoy: > Later this summer, leveraged-loan defaults will increase significantly as the economic effects of the pandemic fully register. Bankruptcy courts will very likely buckle under the weight of new filings. (During a two-week period in May, J.Crew, Neiman Marcus, and J. C. Penney all filed for bankruptcy.) 1. We have hit 2014 highs, but we are reopening, and the Fed keeps buying bonds allowing the companies to incur on new debt while keeping their dues with banks. > We already know that a significant majority of the loans in CLOs have weak covenants that offer investors only minimal legal protection; in industry parlance, they are “cov lite.” The holders of leveraged loans will thus be fortunate to get pennies on the dollar as companies default—nothing close to the 70 cents that has been standard in the past. 2. I don’t see him even throwing a percentage of the number of CLO’s that would have to default for this to be a problem. It would be nice to understand where we were, where we are, and what are the possible outcomes. Moreover, the assumption that companies will go down to zero net worth that returns pennies on the dollar implies that the market for companies is inefficient, the risks and pros are not assessed properly. If that was the case we wouldn’t be seeing so many mergers. Companies that will rather be acquired by other companies on pure stock transaction rather than going down to zero, and the leader in the space absorbs the debt. These mergers are driven for a hunger of client expansion and space specific technology acquisition. https://www.reuters.com/article/us-masmovil-m-a-loans/masmovil-buyers-secure-first-leveraged-loan-since-covid-19-crisis-idUSKBN2442AL https://www.reuters.com/article/us-masmovil-m-a-loans/masmov... After that, you continue making analogies between them by assuming there is more shadow banking and a short market exists, without proof. You also go into a layer structure comparison while ignoring the fact that the CDO’s risk was being assumed recursively while sold linearly. There is also no comment on the fact that the debt on non financial organizations, consumers of CLOs is 23% less than that in 2008 without even adjusting for inflation. I understand your argument, but it seems you have convinced yourself already of a worst case scenario that is not occurring so far because the Fed is bailing the banks out by buying bonds.