In essence, this deal functioned as a classic principal-driven CLO, aiming to generate returns primarily through asset price appreciation rather than ongoing income. This strategy effectively capitalized on market volatility, leading the deal to perform as expected as the loan market rallied.
Notably, short-dated 'principal-driven' CLO deals that were called within 1.5 years have performed very well, with their average IRR standing at around 34.6%.
On a positive note, the manager has made steady improvement over the past few months and as of the last reading...
So, the question remains: why are US BSL CLO AAA prints still stagnant at 150 bp for managers with top-tier AAA prints?
The table below illustrates the equity distributions for EU CLOs, based on a sample of 145 deals. All these deals have exited their reinvestment period by 31 January 2024. Unlike their US counterparts, the median distribution for EU CLOs has been trending higher. In the EU CLO market, many managers have been more successful at maintaining investments in the first and second years post-reinvestment.
The latest median equity distribution was 2.8%, representing a decrease of 60 basis points from the previous median quarterly distribution—a significant decline. This suggests that an increasing number of deals may become ripe for a call over the next few quarters. However, the decision to actually call them will depend on several other factors.
In terms of EUR notional exposure, fixed-rate exposure has increased by EUR 1.6 billion, due to the issuance of more CLOs since the beginning of 2023. If 2023 vintage deals were excluded, fixed-rate exposure would have decreased by EUR 0.3 billion. The following table presents the breakdown of the total EUR 19.4 billion exposure by manager.
Please refer to the table below for the latest data on underlying fixed-rate exposures in EU CLOs, categorised by vintage year and presented in percentiles (75th, 50th, and 25th). These percentiles illustrate the distribution of fixed-rate exposures across the CLO portfolios, while the 'Deal Count' denotes the number of deals for each vintage. In fact, the latest fixed-rate exposures across EU CLOs have largely remained the same compared to those at the end of 2022. The latest median exposure was 8.6%, compared to 8.5% at the end of 2022. In terms of EUR notional exposure, fixed-rate exposure has increased by EUR 1.6 billion, due to the issuance of more CLOs since the beginning of 2023.
Recently, Golub Capital CLO 71 (M) was priced at 195/260/325/510 for its AAA/AA/A/BBB tranches, respectively. Given the size of the deal, achieving these pricing levels was impressive.
Of these 207 US CLO deals, about 63 are better positioned for redemption as they have an equity NAV exceeding 10 percentage points, based on asset prices as of February 5, 2024. Most of these deals originate from the 2017 and 2018 vintages, as indicated in the table below. Market conditions are also conducive for a call. However, the final decision rests with the equity holders.
Gain invaluable insights from this updated article, which explores the equity internal rates of return (IRRs) of over 500 US CLO deals. It highlights managers who have adeptly handled these deals, demonstrating equity IRRs exceeding the 12.0% threshold.
Please see the chart below for the distribution of the latest EU CLO equity payments across 481 EU CLO deals. The median deal's latest distribution was at 4.2%. At least 10 seasoned deals from the 2013–2017 vintage are well-positioned for redemption. These deals have exited their reinvestment period and have achieved at least 110% of total equity distributions plus NAV on their last reporting dates.
Please see the table below for a list of EU CLO deals that distributed over 10 percentage points to their equity holders on their latest payment dates.
🌟 January 2024 CLO Insights: This month's CLO research wrap is packed with key findings. Discover the latest trends and insights shaping the CLO market now.
Another noteworthy aspect of the deal is that, while its reinvestment period ended in early 2020, it managed to maintain a very low prepayment rate of around 3-4% p.a. during the first two years of the post-reinvestment (post-RI) period.
