News reached us from Mars of the first powered Earth aircraft to fly on another planet. Ingenuity, a helicopter with four foot wide blades (and carrying a small swatch from the original Wright Brothers bi-plane), hovered at ten feet for 30 seconds then lightly touched back down. More flights are planned.

“What the Ingenuity team has done,” a NASA official said, “is give us the third dimension.”

As we wrap our series on CLOs and Covid, let’s provide an extra dimension to these vehicles; namely, how should investors think about evolving risks for CLO liabilities and the firms who manage their portfolio of assets?

CLO capital structures are organized with the least risky, lowest-spread debt (triple-A rated) at the top of the cash flow waterfall. Below that tranche are more risky, higher-spread liabilities, with the equity at the bottom. There exists active primary and secondary markets for these investments, with spreads varying on elements such as market conditions and management expertise.