In structured finance, the "2.0" moniker is applied to the post-financial crisis generation of asset-backed securities that have more stable structures, including most often commercial mortgage-backed securities (i.e., "CMBS 2.0").
Post-crisis collateralized loan obligations (CLOs) also seem to have entered the 2.0 era, with post-crisis CLOs satisfying investor demand for better credit risk trasfer governance. As noted by attorneys at Dechert LLP:
The CLO “Next Gens” of 2011, in comparison with the “Classic” CLOs of 2004-2007, feature lower leverage, higher credit support, shorter reinvestment periods, maturity and non-call periods, smaller CCC buckets and higher spreads.
As also noted by the attorneys, less leverage and more credit enhancement allows the CLOs to be collateralized with a greater proportion of relatively risky loans, such as loans with few or no covenants (covenant-lite loans) or those for which borrowers are permitted to stop payment in distress situations (deferrable securities).
The authors predict that CLO 2.0 structures will soon trend back to their pre-crisis "classic" form, in part because of how well classic CLOs have performed. This is an important point. As I argue in my paper on credit risk transfer governance (section V.A.2), the CLO market was well governed before the financial crisis, and that is why it performed relatively well and should not be lumped in together with failed credit risk transfer transactions. Right now, investors are probably still overreacting to the crisis in second-level securitizations of subprime RMBS by demanding too much governance from post-crisis CLO structures.
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