CLOs' Trading of Brown Loans when Climate Change Draws Attention

Kathrin Hackenberg, Viktoria Klaus, Sven Klingler, Talina Sondershaus

Research output: Working paper/PreprintPreprint (in preprint archive)

Abstract

Collateralized Loan Obligations (CLOs) are non-bank entities securitizing high-yield loans and trading these on secondary markets. They are decisive for the functioning of the leveraged loan market and therefore refinancing opportunities of firms. We assess how CLOs change their trading behavior when public attention to climate change rises. We find that CLOs increase exposure to high emission loans at lower prices. CLOs with experience in trading brown loans and younger CLOs with a stable liability structure drive the effects. We conclude that CLOs take on the role of arbitrageurs when public attention to climate change is pronounced.
Original languageEnglish
PublisherSSRN
Number of pages61
Publication statusPublished - 2023 Feb 1

Subject classification (UKÄ)

  • Economics

Free keywords

  • climate change
  • sustainable investing
  • Paris Agreement
  • private markets
  • leveraged loans
  • institutional investors
  • shadow banks
  • non-banks
  • CLOs
  • G11
  • G14
  • G23
  • Q51

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