Weekly Musings – Post-RP Prepayment Rates
From a CLO debt perspective, selecting the right manager and deal with higher post-reinvestment period (post-RP) prepayment rates can be...
From a CLO debt perspective, selecting the right manager and deal with higher post-reinvestment period (post-RP) prepayment rates can be...
Tuesday’s BWIC colour included three distressed bonds originally rated single-B: two were covered at 31h, and one at around 10h. Discount margins were not reported, as it is highly unlikely these bonds will be repaid at par—an IRR-based approach would be more appropriate. Pricing these thin tranches remains particularly challenging, as even a small change in the underlying collateral NAV can significantly affect their value.
As illustrated in the table and chart in this article, seasoned US BSL CLO managers have, on average, closely tracked the loan index since early 2024, following a period of relative outperformance of 10–20 bps between 2021 and 2023. Although managers delivered strong results in 2021, their relative performance has weakened since then—particularly amid the market volatility of 2022 and 2023. This trend suggests that, on average, managers have not fully capitalised on periods of dislocation, with inception-to-date alpha hovering around 0% in 2024.
Since January 2020, OHA has generated impressive, above-average inception-to-date total return alpha, driven by its consistent focus on minimising portfolio losses. This approach relies on rigorous, ongoing credit research and the regular application of that analysis to portfolio re-optimisation. The manager’s investment strategy is built on the belief that close collaboration across industry teams and integrated access to all asset classes within leveraged finance provide a robust foundation for research and portfolio construction.
Among managers with two or three deals in the sample, CIFC and Spire Partners have also performed well, with all of their seasoned deals ranking in the top quartile.
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