John Kerschner

Software stocks are crashing (IGV down 22%), but actual corporate defaults have not risen yet. The volatility in software equity hurts the "Equity" and "BB" tranches of CLOs (which hold ~14-19% software debt). However, Investment Grade tranches (AAA, A, BBB) are insulated from price volatility as long as defaults remain low. Floating rate structures protect against rate volatility. LONG. Investors should move down the stack from AAA to A/BBB (JBBB) to capture 50-100bps extra yield with minimal added default risk. A spike in actual corporate defaults (not just stock price drops) in the software sector.

Software stocks are crashing (IGV down 22%), but actual corporate defaults have not risen yet. The volatility in software equity hurts the "Equity" and "BB" tranches of CLOs (which hold ~14-19% software debt). However, Investment Grade tranches (AAA, A, BBB) are insulated from price volatility as long as defaults remain low. Floating rate structures protect against rate volatility. LONG. Investors should move down the stack from AAA to A/BBB (JBBB) to capture 50-100bps extra yield with minimal added default risk. A spike in actual corporate defaults (not just stock price drops) in the software sector.

Software stocks are crashing (IGV down 22%), but actual corporate defaults have not risen yet. The volatility in software equity hurts the "Equity" and "BB" tranches of CLOs (which hold ~14-19% software debt). However, Investment Grade tranches (AAA, A, BBB) are insulated from price volatility as long as defaults remain low. Floating rate structures protect against rate volatility. LONG. Investors should move down the stack from AAA to A/BBB (JBBB) to capture 50-100bps extra yield with minimal added default risk. A spike in actual corporate defaults (not just stock price drops) in the software sector.