CLO Research

Collateral weighted average price (WAP*) is quite useful for a quick snapshot of collateral credit risks. That said, this metric...

The table below shows the US BSL CLO asset maturity wall as well as asset notional amounts in CLO deals with different current WAL test cushions.

The table below shows the US MM CLO asset maturity wall as well as asset notional amounts in CLO deals with different current WAL test cushions.

CLO deals with a good WAL test cushion would be in a much better position to take advantage of amend-to-extend activities and boost the asset spreads. The table shows the EU CLO asset maturity wall as well as asset notional amounts in CLO deals with different current WAL test cushions.

Based on deals that have been fully redeemed so far, a final NAV of over 50% is typically desired to deliver at least a high-single IRR number for CLO equity investors. Of course, annual distributions need to hit around 15-16% for about five years for a regular arbitrage CLO deal.

Older vintage CLO deals with limited reinvestment flexibility would suffer more in today’s market. For a post-2012 CLO deal to deliver a decent equity IRR, the final NAV realisation plays a key role.

Suppose that static deals are priced wider or in line with the regular longer-dated CLOs. In that case, it could...

A slower prepayment rate would lead to a longer duration of the debt tranches. If the MVOC is also low, then debt investors might see higher price volatility. On the other hand, a slow prepayment rate would bode well for CLO equity valuation in general.

The table shows the line-by-line post RI end date annual collateral prepayment rates of 269 US BSL and MM CLO deals. MM CLOs experienced higher prepayment rates than BSL CLOs, perhaps largely due to their more restrictive post reinvestment period languages. Notably, some US BSL CLO managers tend to see lower prepayment rates post reinvestment period.

The table shows the post RI end date annual collateral prepayment rates of 105 EU CLO deals with Aug 2018–Aug 2022 reinvestment end dates

How quickly is CLO rated debt paid down post reinvestment end date?

Given that the US loan market is a lot bigger and diversified, the CLO overlap risk (between managers) is lower for US CLOs. It is apparent that the similar median EU CLO equity NAV across vintages can also be partially explained by the relatively higher reset level of older deals in Europe. Not many seasoned EU CLO deals have been fully redeemed. Also, many older vintage deals have been reinvesting for much longer than suggested by their reinvestment periods.

Market Value Over-Collateralisation (MVOC) (say, at the single-B tranche level) is calculated by dividing the collateral MV by the sum...

Some EU CLO managers run a lower WARF strategy, while others employ a higher WARF strategy. Which EU CLO managers make it to the top five based on their latest total return alpha performance for each WARF category?

A sample of 199 seasoned deals (2015–2019 vintage deals) managed by 39 managers is included in this study. The benchmark...