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With the CLO market in overdrive, robust loan reference data is even more critical

07 September 2021 Erik J Woodling

The collateralized loan obligation (CLO) market has been on fire this year, with lower spreads and pent-up demand driving activity to record highs. CLOs have topped $200 billion in the U.S. in 2021, with re-financings and resets making up the bulk of the total. Globally, the CLO market is on track to top $1 trillion.

The incredible volume of activity is already testing market infrastructure. It has also accelerated the pace of loan reference data changes and ballooned the volume of agent notices that need to be tracked and managed. In parallel, the LIBOR transition has highlighted the need for deeper insights into credit agreements and increased scrutiny on the accuracy and transparency of underlying transactions.

Operational challenges

The operational challenge of tracking loan amendments and restructures, while also ensuring the necessary transparency and accuracy, is significant. Amendments and restructures do not have a standard form of public notification, making the collection of important changes to terms and conditions difficult to track. Agent notices, which can come via fax or electronically, are also notoriously difficult and time-consuming to aggregate. As a result, firms often pull high-value staff off strategic activities and assign them to review documents that are sometimes hundreds of pages long.

These are challenges that we at IHS Markit are very familiar with as we have been helping our clients access the most up-to-date loan data for more than 15 years. We have done so by offering two interlinked solutions: Loan Reference Data, which tracks changes through amendments and public filings; and Notice Manager, which tracks dynamic borrower-driven changes, such as new contract periods, pre-payments and rate change requests for borrowings/fundings.

These solutions meld managed services, data and technology (including AI) together to provide a comprehensive, current, and accurate view of the loan market.

In both cases, we take very unstructured data and put it into our own structured format that allows for straight-through processing (STP). This results in huge time and cost savings for clients. They can reduce the number of people doing the tedious work of digging through and distilling a myriad of complex documents and dedicate more resources to other, higher-value tasks.

Our vast network

Our loan data is continuously updated and captures information not only from the initial credit agreement, but also from subsequent amendments. This is possible thanks to the vast network of loan market participants that we service (including a large number of CLO managers and loan investors), giving us unique access to a broad universe of post-issuance data. Loan Reference Data, for example, provides validated credit agreement data on more than 10,000 active loans. Notice Manager receives more than 17 million notices every year, and has categorized and transformed just shy of 150 million of them into structured messages since 2005.

Having this up-to-date information is crucial for maintaining compliance, conducting performance attribution and identifying new investment opportunities. But getting it right is as important as getting it fast. IHS Markit employs a robust SOC 1-certified validation process that leverages both automation technology and expert knowledge to ensure data is error-free before reaching clients. It works so well that we regularly catch errors from the agent banks providing the information (e.g. when there is a discrepancy between a new base rate and the floor rate of the original credit agreement). We aggregate the issues, flag them to the banks for resolution and, by doing so, save our clients valuable time.

To further support the CLO and wider loan market , IHS Markit offers a range of complementary solutions supporting loan trade settlement, loan portfolio operations, data management and front-office investment management operations. Integration with Notice Manager and Loan Reference Data further accelerates data flowing into these related solutions.

With the breakneck pace of today's loan market, the importance of up-to-date and accurate loan data has never been greater. With that need certain to grow further, we continue to expand our data coverage and invest in greater automation throughout the loan lifecycle, so that we are ready to support our clients now and in the future.

Learn more about Loan Reference Data and Notice Manager.

Posted 07 September 2021 by Erik J Woodling, Managing Director, Loan Platforms, IHS Markit

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

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