This Atlantic article, written by Professor Frank Partnoy of UC Berkeley, describes at length how CLOs—complex securities comprised of risky loans issued to highly indebted companies—pose a significant threat to the financial system.

​

​The article includes a quotation, reproduced below, from Dr. John Griffin, President of Integra. 

​

“I’ve been concerned about AAA CLOs failing in the next crisis for several years,” Griffin told me in May. “This crisis is more horrifying than I anticipated.”

​

Under current conditions, the outlook for leveraged loans in a range of industries is truly grim. Companies such as AMC (nearly $2 billion of debt spread across 224 CLOs) and Party City ($719 million of debt in 183 CLOs) were in dire straits before social distancing. Now moviegoing and party-throwing are paused indefinitely—and may never come back to their pre-pandemic levels.

​

The prices of AAA-rated CLO layers tumbled in March, before the Federal Reserve announced that its additional $2.3 trillion of lending would include loans to CLOs.

​

The full article by Professor Partnoy can be found at the Atlantic at the this link.