CLO Research

Equity-friendly deals can typically expect a slower pay-down rate in the first and second years of the post-reinvestment period. These suggested annualized prepayment rates are derived from median metrics.

The next table displays the post-reinvestment (RI) end date prepayment rate ranges for 48 'equity-friendly' deals with less than 10% total prepayment rates during the first two years following the RI end date. Analysis of the median deals indicates that prepayment rates remained minimal in the first three years of the post-RI period.

The first table in this article showcases the prepayment rate ranges during the post-RI period for deals surpassing 10% in their initial post-RI year. By the close of the second year in the post-RI period, the median deals suggest that about 44% of the collateral balance would be prepaid. In comparison, 'more equity-friendly' deals would see only around 22% of the collateral balance prepaid, as illustrated in the second table.

Unlike in US BSL CLOs, the guidelines for purchases in US MM CLOs during the post-reinvestment (RI) period are simple and straightforward: managers are prohibited from acquiring new assets after the RI end date. This stipulation is appealing to debt holders.

The table in this article illustrates the average gross annualised return on underlying CLO collateral and the annualised cost of funding (inclusive of management fees) for each quarterly vintage of deals closed in 2022. On average, deals closed in the third and fourth quarters of 2022 saw a higher collateral return that more than compensated for the corresponding rise in their funding costs.

Those with available capital, or 'dry powder,' often find themselves at an advantage. Indeed, deals yielding good returns were typically priced during periods of substantial market volatility.

Assets maturing in 2024 and 2025 necessitate more immediate attention, and to some extent, those maturing in 2026 do as well. As of 16 October 2023, approximately EUR 1.4 billion of assets maturing in 2024 were quoted below a 98 price. Similarly, around EUR 6.1 billion of assets maturing in 2025 were quoted below the 98 price.

Among the managers with more than $5 billion in US CLO AUM, Oak Hill, Redding Ridge, Elmwood, AGL, Sixth Street, Irradiant, Oaktree, Ballyrock, and Partners Group all demonstrate favorable reinvestment profiles.

Please refer to the table below for a comprehensive list of US CLO managers, along with their BSL and MM assets (in billions) under US CLO management.

Please refer to the table below for a list of EU CLO managers and their assets under management (in billions). In addition, the table indicates the number of days since each manager last priced a primary deal, as of 30 September 2023. This information is based on data sourced from LCD and Intex.

Drawing upon EU CLOs from 2013-2022, the underlying collateral maturities for 2024 have witnessed a YTD decline of 67%, a figure attributable to refinancing and extension activities, as well as the redemption of CLOs.

The table below offers a detailed breakdown of the reduction in 2024 and 2025 maturities, categorised by manager. Fifteen managers decreased their 2024 and 2025 maturities by at least EUR 0.5 billion each, collectively contributing to a EUR 12.4 billion reduction.

Historically, pricing a CLO deal has proven more straightforward when the loan market is robust and stable. As illustrated in the table below, approximately 75% of US CLO deals were priced when the Morningstar LSTA US B-BB Ratings Loan Index's bid price was 97 or above, with around 61% of deals priced at an index bid price of 98 or higher.

Notably, Redding Ridge, Hayfin Capital, Partners Group, Oaktree Capital, Invesco, Sound Point Capital, Napier Park and Permira Debt Managers all exhibit favourable reinvestment period profiles.