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.
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