“Better slip with foot than tongue.” – Benjamin Franklin
US CLOs: Annual Distribution vs CLO Equity IRR
A sample of 60 redeemed US CLO equity tranches (2012–2018 vintage deals) is included in this study. These equity tranches registered an annual distribution of 13.3% – 15.8%.
CLO equity IRR (rather than annual distribution) is at the heart of the arbitrage CLO creation equation.
The graph below shows the relationship between annual distribution and equity IRR*.
This graph highlights the fact that CLO equity annual distributions (cash-on-cash returns) are not the same as CLO equity investment returns.
* Issue price of $95 is assumed.
More details can be found in the premium article ‘Understanding The Commonly Used CLO Deal Metrics And Their Limitations’.
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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; authorized 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.
