Quick Take: 2021 US CLO Deals First Reported WAS vs Initial WACC
- Reported weighted average spread (WAS) includes the benefits of Libor floors
- The weighted average current tranche spread refers to the weighted average running cost of capital or funding (spreads), excluding management fees
- Deals with over 10% fixed rate tranches in their capital structure are excluded from the sample
- Actual arbitrage return would depend on the actual total investment return of the CLO underlying collateral pool and the cost of funding
- Deals with a wider Net Interest Margin (NIM) might see a decent investment return if they managed to outperform on the MV front.
- Having said that, there are many deals with a narrower NIM that outperform deals with a wider NIM – CLO manager selection is key
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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; authorised personnel, or their directors 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 the information, research, data, research related opinions, observations and estimates contained in this document. All information, research, data, research related opinions, observations, and estimates in this document are in draft form as of 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 historical or current position or performance of any of the deals or issues mentioned in it.
