In essence, resetting a deal extends the total reinvestment period, which is positive from an equity standpoint. If a CLO deal can generate an annual equity distribution of 13–14 points over a period of 8–11 years, its equity is likely to perform reasonably well, even if its final equity NAV is poor. It’s worth noting that most of the seasoned reset deals were active during a period of very low-interest rates.
In the table below, the relative standing of each US CLO manager is illustrated based on their latest average total alpha metrics. A score of 91% means that the manager's total return alpha is at the 91st percentile, indicating that their total return alpha metric is higher than 91% of their peers.
Given the similarity in average annual sale volumes between these two sets of managers, it becomes apparent that the volume of trading has limited influence on the alpha performance of managers, as per the findings of this study. It is worth noting that both active and less active managers, in terms of trading activities, are well represented in both the upper and lower segments of manager performance.
This study underscores the significant divergence in investment performance between the top and bottom 10 US CLO managers based on their alpha. The findings emphasize the critical role of effective manager selection in achieving favorable results. While metrics like par build and weighted average price offer insights, they don't tell the whole story. Conversely, the average WAS, WARF, and liquidity depth metrics for both groups show minimal variance, indicating a limited correlation of these metrics with investment performance based on this sample.
Below are tables presenting the MVOC (AAA-B) and EQ NAV of EU CLO deals by vintage, based on asset prices...
Below are tables presenting the MVOC (AAA-B) and EQ NAV of US BSL CLO deals by vintage, based on asset...
The table below shows the latest number of post-2012 EU CLO deals that have failed at least one of the key tests – interest diversion, overcollateralization, or interest coverage tests – broken down by vintage.
Below are tables presenting the MVOC (AAA-B) and EQ NAV of US BSL CLO deals by vintage, based on asset...
York CLO-1 has been redeemed, and its equity tranche is expected to surpass the 12% IRR threshold, leading the manager to receive an incentive fee. The redemption of this deal in today’s market conditions highlights its strong performance.
Below are tables presenting the MVOC (AAA-B) and EQ NAV of US BSL CLO deals by vintage, based on asset...
Below are tables presenting the MVOC (AAA-B) and EQ NAV of EU CLO deals by vintage, based on asset prices...
With the current attractive yield offered by new issue US CLO BB tranches, it comes as no surprise that this risk-return profile is generating significant interest. The table below illustrates the projected annual yield of a recently priced US BSL CLO BB tranche.
At first glance, one might assume that managers with higher portfolio spreads tend to perform well during favorable market conditions but struggle during downturns. However, upon closer analysis of the average alpha performance within each category, this assumption is only partially valid and not universally applicable.
It is worth noting that the median WAPs (Weighted Average Prices) of US CLOs surpass those of EU CLOs across all vintages. However, when considering the median <70 and <60 price bucket metrics, EU CLOs outperform their US counterparts across all vintages.
Tracking price buckets at 80/70/60 or below for CLO underlying collateral can be useful in assessing tail risk in the asset pool.
