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Irish CLOs Have 0.36% Exposure To Oil & Gas

At time of writing, West Texas Intermediate (WTI) oil prices have fallen to $32.10/barrel, a drop of 22.5% from their closing prices on Friday evening.

Earlier this morning, prices dropped as low as $27.36, the lowest since 2003.

This drastic move to the downside was primarily due to a policy reversal by Saudi Arabia to increase crude output, following an unsuccessful OPEC+ meeting last week in which Russia did not agree to output cuts.

Oil prices had been sliding rapidly following the outbreak of the COVID-19 coronavirus, which has hit air travel in particular, a sector which is one of the largest consumers of crude oil-based fuels.

This price drop is expected to hit US shale producers particularly bad, as these firms have a much higher breakeven rate than many OPEC producers including Saudi Arabia and Russia.

This morning has seen the oil majors fall by over 20%, with BP hitting an intraday low of £2.82 (-28.7%), and Royal Dutch Shell falling as far as £12.34 (-23.0%).

This stress is showing up in high-yield credit markets, where there is significant exposure to high-yield energy companies. The PIMCO Short-Term High Yield Corporate Bond Index Source UCITS ETF (STHY.MI) fell as low as €78.20 (-9.1%) intraday. As recently as the 19th February 2020, this ETF was trading at €93.30.

With unprecedented stress in markets, inevitably there will be concern around the exposure of different investment vehicles to these volatile price swings.

Looking at Irish CLOs, our research has discovered that in aggregate these vehicles have a direct exposure to the Oil & Gas sector of just 0.36%.

Some other coronavirus-sensitive sectors that Irish CLOs have exposure to include: Hotel, Leisure & Gaming (5.75%), Air & Consumer Transport (0.27%), and Aerospace & Defence (0.80%).

In aggregate, the total exposure of Irish CLOs to these coronavirus-sensitive sectors totals just 7.18%. Our research suggests that Irish CLOs are well diversified across individual country and sector exposures, although they have a particular concentration in Europe.

This article uses information from Atlantic Star Consulting’s research database on Irish SPVs. Data references 2017 accounts. For more information about how our research can work for your firm, contact us at info[email protected].

Dominick Barrett
Dominick Barrett
Dominick is Managing Director of Atlantic Star Consulting.

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