Subordinated management fees would be deferred if CLO deals breached their OC tests.
The latest count of deals with OC breach stood at 157 (all US CLO deals) as of 3rd of May, which would translate to an estimated $41.4million of quarterly subordinated fees being deferred.
Interest diversion (ID) test only applies during the reinvestment period. If a deal breached this test, up to 50% of interest cashflows after paying the lowest-rated debt tranche would be diverted to invest in more collateral. The remaining excess interest proceeds would be used to pay the subordinated management fees before paying the equity tranche. Roughly around 60% decrease in the equity payment would be seen if the ID test remained breached.
241 CLO deals (managed by 68 US CLO managers) have breached their ID or/and OC tests.
Disclaimers
The information, research, data, research related opinions, observations and estimates contained in this document have been compiled or arrived at by CLO Research Group, based upon sources believed to be reliable and accurate, and in good faith, but in each case without further investigation. None of CLO Research Group or its service providers, their directors or authorised personnel make any expressed or implied presentation or warranty, nor do any of such persons accept any responsibility or liability as to the accuracy, timeliness, completeness or correctness of such sources and of the information, research, data, research related opinions, observations and estimates contained in this document. All information, research, data, research related opinions, observations and estimates contained in this document are in draft form as at the date of this document and remain subject to change and amendment without notice. Neither CLO Research Group nor any of their third-party providers shall be subject to any damages or liability for any errors, omissions, incompleteness or incorrectness of this document. This article is not and should not be construed as an offer, or a solicitation of an offer, to buy or sell securities and shall not be relied upon as a promise or representation regarding the historic or current position or performance of any of the deals or issues mentioned in it.
