As of 16 February 2024, the latest arb metric was recorded at 225 bp, higher than the median value of 219 bp for 2023, but lower than the median metric YTD.
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In essence, this deal functioned as a classic principal-driven CLO, aiming to generate returns primarily through asset price appreciation rather than ongoing income. This strategy effectively capitalized on market volatility, leading the deal to perform as expected as the loan market rallied.
This study examines a sample of 218 deals from 2015 to 2019, utilising the S&P European Euro-Denominated Loan Index as the benchmark loan index.
Please refer to the table below for the latest data on underlying fixed-rate exposures in EU CLOs, categorised by vintage year and presented in percentiles (75th, 50th, and 25th). These percentiles illustrate the distribution of fixed-rate exposures across the CLO portfolios, while the 'Deal Count' denotes the number of deals for each vintage. In fact, the latest fixed-rate exposures across EU CLOs have largely remained the same compared to those at the end of 2022. The latest median exposure was 8.6%, compared to 8.5% at the end of 2022. In terms of EUR notional exposure, fixed-rate exposure has increased by EUR 1.6 billion, due to the issuance of more CLOs since the beginning of 2023.
Please see the chart below for the distribution of the latest EU CLO equity payments across 481 EU CLO deals. The median deal's latest distribution was at 4.2%. At least 10 seasoned deals from the 2013–2017 vintage are well-positioned for redemption. These deals have exited their reinvestment period and have achieved at least 110% of total equity distributions plus NAV on their last reporting dates.
Madison Park Funding XLI (formerly Atrium XII) deal was recently called. This deal, managed by CSAM, was closed in late 2015. The deal’s average equity distribution was very impressive, at 19.1% over a period of around 8 years. This deal did a reset in late 2017, reduced its cost of funding significantly, and distributed excess par upon reset. The deal's solid first distribution of 17.2% certainly helped boost the average annual distribution too. Without the par distributions, the deal's annual distribution would likely be around the 17% mark rather than in the 19% area.
Please refer to the table below for a list of EU CLO managers and their assets under management (in billions). In addition, the table indicates the number of years since each manager last priced a primary deal, as of 31 December 2023. Twenty-three managers have not issued a primary deal in over one year, and ten managers have not issued one in over two years.
Please refer to the table below for a comprehensive list of US CLO managers, along with their BSL and MM assets (in billions) under US CLO management, and the number of days since a primary deal was last priced as of 31 December 2023.
Several conclusions can be drawn from the chart. In particular, it appears that debt investors did not really price in the different post-reinvestment prepayment rates given the generic pricing assumptions for new issue deals. This raises the question: Should managers with higher post-reinvestment prepayment rates be priced tighter than those with lower rates?
Approximately one year ago, the CLO industry pondered where new-issue US CLO AAA spreads would land by the end of 2023. As we look ahead, what are your predictions for how the new-issue CLO AAA spreads will evolve by the end of the first half of 2024?
The table below presents some median metrics for each quartile of managers’ performance, based on their annualised alpha metrics from issue dates to 27 November 2023.
The tables provided offer a detailed overview of the final IRRs for 1.0 US CLOs, derived from a comprehensive dataset comprising 312 US BSL CLO deals, specifically from the 2006 and 2007 vintages.
Generally, it's assumed that larger managers who buy the market might not perform well. However, an analysis of average alpha performance across categories reveals that larger US CLO managers have consistently outperformed their smaller counterparts, as evidenced by a sample of seasoned deals from 2015 to 2019.