Vivian van Breemen

27 2.1 Introduction Ta nhde Fci rt cehd. iTt hreast ei nt gh rienedcur se tdriyt riast i dn og ma gi ennact ieeds (bCyR AMso) ohda yv e’ s r, oSut ga hnldy a9r1d%&o fPtohoerm’ s a(rSk&e tPi )n, Europe and 95% of the market in the US (European Securities and Markets Authorities (CEoSl lMa tAe r) ,a l2i z0e2d0L; oSaenc uOrbi tl ii eg sa t ai onnds (ECxLc Oh as n) gi sea Cs oe gmmmeins ts ioof nt h(eS sEtCr u) , c 2t u0r2e0d)f. i nTahnec emsaerckuerti t fi oe sr market10 and in assigning the credit ratings of CLOs the dominance of only two of CRAs b2 e0 i0n8g, mC Ro Ar es pwr eorneo aucnccuesde, dMoof oadsys ’isg na ni ndg Sb&i aPs. eI nd trhaet i wn gask teoosf t trhuec tgul or ebda l f if ni naannccei asleccrui rs ii tsi eosf snuoct ha pa ps rCoLpOr si a(tee. lgy. , rGe rf li ef fci nt tehtearl i. ,s2k 0s 1a 3s s) oocri, amt eodr ewgi tehnCe Lr aOl ,s t(os eh ea ,vee. ga. s, Fc raibboezdz ri a&t iVnignskt, h2a0t1d0o; Flynn & Ghent; 2018; He et al., 2016; Zhou et al., 2017). Due to the complexity of CLO structures, investors are exposed to the risk that the assigned credit rating does not fully or precisely reflect actual credit risk (Vink et al., 2021). Concerned that investors may rely too heavily on potentially biased or inflated rCaRt Ai nsg isn, at tht ei t ui nddeus st torwy ahradss ct hh ae nrgoel ed obf rCoRa Ad lsyaannddt, hi en ds oo mm ien ca anscees o, fc rt hy se ttahl irzeeedl aartgtehset regulatory level. The Dodd-Frank Act11 in the United States (US) and regulations12 in the European Union (EU) have sought to reduce the reliance on credit ratings, especially for structured finance securities. The stated goal is for the market to mc aol lv ef oarwaany fermo mp i rrieclai al ni cnev eosnt i cgraet di oi tn r aa ti mi n eg ds . Ta th eb Ue tSt earn du nEdUe rr es tgaunl ad ti on rgy trhees peoxnt es en st to which investors rely on credit ratings in the CLO market. This improved 10p eIrni o2d0 1i n8 t, hCeL OE Ui s smuaarnkceet iint wt haesUaSpmp raorxki emt aatme loyu€n2t e8dbtiol l iroonu g( Bhlloy o$m1 2b5e rbgi,l l2i o0n1 9( S) &. P G l o b a l , 2 0 1 8 ) a n d a t t h e s a m e t i m e 11SubDsoedcdti-oFnra1n5kGA. ct, 2010, Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Section 941 12(ERCe)gNuola1ti0o6n0(/E2U0)0N9oo4n6C2R/A20s.13 of the European Parliament and of the Council of 21 May 2013 amending Regulation Chapter 2 - How much do Investors Rely on Credit Ratings

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