- A significant number of US BSL CLO deals are candidates for reset due to their overall high cost of funding. Many of these deals include fixed-rate tranches that are currently ‘out of the money’—meaning these tranches are expensive to refinance. However, the cost savings achieved from resetting other tranches far outweigh the costs associated with refinancing the fixed-rate tranche(s) of the same deal. This implies that the fixed rate tranche holders would be pleased with more resets as these would allow them to be prepaid at par. For more details, please refer to the article “US BSL CLOs: Reset Candidates—Low Hanging Fruit in 2024.”
- The number of US CLO deals that have failed at least one of the key tests – interest diversion, overcollateralization, or interest coverage tests – have increased to over 200. Please see the article “List of US CLO Deals Failing OC/IC Tests, Categorized by Manager” for more details.
- The final equity IRR of a CLO is not solely determined by defaults. The actual IRR performance of a CLO equity tranche depends on a multitude of factors, such as the underlying collateral performance since inception, the cost of funding throughout the life of the deal, management fees, upfront costs, the leverage of the CLO structure, and the timing of the deal’s redemption. For example, two seasoned deals managed by the same manager with a very low annual default rate experienced a fairly different final equity IRR outcome. For more information, please refer to the article “Comparison of EU CLO Equity IRRs and Annual Default Rates.”
- The equity performance of 26 redeemed EU CLO deals since October 2023 stands out, with the average deal registering a 15.7% IRR. However, the IRR metric has been skewed by the solid performance of redeemed deals from the 2022 and 2023 vintages. For more information, please refer to the article “Final Post-2013 EU CLO Equity IRRs Categorised by Vintage.”
- Golub Capital has become the largest US CLO manager, managing $40.1 billion in US CLO AUM. Please see the article “Tides of Change: The Latest in US CLO AUM by Manager (Updated)” for more details.
- Blackstone remains the largest EU CLO manager, closely followed by CVC, with Carlyle holding the third position. For more details, please refer to the article “League Table: EU CLO Manager AUM (Updated).”
- CLO deals from larger, seasoned, and more established CLO managers are typically priced tighter than those from their smaller counterparts in the US CLO market. However, the landscape in the EU CLO market differs quite significantly. Smaller CLO managers have been able to price their deals at levels similar to or even better than their larger counterparts. Please see both of these articles, “US BSL CLOs: Tightest New Issue WACC YTD (Updated)” and “EU CLOs: Tightest New Issue Prints YTD” for more information.
- The BB tranches of 11 US BSL CLO deals are underwater, indicating that the notional value of their underlying collateral is insufficient to cover any remaining outstanding debt tranches (from AAA to BB) of these CLOs. Apart from the 11 deals previously mentioned, there are 20 additional deals whereby the market value (MV) of the underlying portfolio would not be sufficient to cover the liabilities (excluding the single-B tranche) under a scenario where underlying assets with a credit spread-to-maturity of less than 1,200 basis points are considered at par value. Furthermore, the valuation of all other ‘distressed’ assets will be based on their market prices as of April 1, 2024. The value of equity or warrants is not included in the collateral valuation. Similarly, the single-B tranches of 12 US BSL CLO deals are underwater, showing that the notional value of their underlying collateral is insufficient to cover any remaining outstanding debt tranches. Alongside these 12 deals, there are 29 more deals that would experience below 100% market value coverage under the same scenario. Please see both of these articles, “US BSL CLOs: Potentially Impaired Single-B Candidates” and “US BSL CLOs: Potentially Impaired BB Candidates” for more details.
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The Morningstar Indexes are the exclusive property of Morningstar, Inc. Morningstar, Inc., its affiliates and subsidiaries, its direct and indirect information providers and any other third party involved in, or related to, compiling, computing or creating any Morningstar Index (collectively, “Morningstar Parties”) do not guarantee the accuracy, completeness and/or timeliness of the Morningstar Indexes or any data included therein and shall have no liability for any errors, omissions, or interruptions therein. None of the Morningstar Parties make any representation or warranty, express or implied, as to the results to be obtained from the use of the Morningstar Indexes or any data included therein.
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 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.
