CLO Research

Examining the exposure below the €80 and €70 price buckets provides valuable insights into the tail risk of the collateral pool. However, it is important to note that these figures may be influenced by trading activities, which can distort the results. For instance, CLO managers may have realized credit losses and lost par due to trading underperforming assets. Therefore, data on the change in portfolio par since inception has been included to provide additional context. Additionally, the last column shows the average % of fixed rate exposure by manager.

Below are tables presenting the MVOC (AAA-B) and EQ NAV of US BSL CLO deals by vintage, based on asset...

It is important to highlight the significant variation observed in the BB MVOC and equity NAV metrics across the 2022 vintage deals.

The pricing of CLO-rated tranches in both primary and secondary markets heavily relies on MVOC metrics, making the performance of the loan market a significant factor that impacts the trading of these tranches.

This article provides a comparative analysis of the investment strategies of three top-tier US CLO managers based on their total alpha performance from seasoned deals. The investment strategies are outlined in the latest Fitch Ratings’ CLO Asset Manager Handbook.

AAA CLO investors would undoubtedly favour witnessing higher prepayment rates during the post-reinvestment period.

"CLO equity investors would prefer to see lower prepayment rates, particularly during the first two years of the initial two-year period following the reinvestment period."

For a sample of EU CLO deals with reinvestment end dates between July 2018 and January 2022, the post-reinvestment end...

It is worth noting that CLO deals rarely reach maturity, leading to higher annual collateral par loss rates due to mark-to-market (MTM) losses. This, in turn, results in implied default rates that exceed reported defaults, factoring in trading losses and defaults.

The following table provides a summary of key performance metrics for five recently redeemed US CLO equity tranches, including estimated equity internal rate of returns (IRR), annual distributions, final equity net asset values (NAV), time to call (WAL) and initial arbitrage metrics.

It is worth noting that even though deals 1 and 2 had a similar healthy initial arbitrage or net interest margin (portfolio weighted average spread net of cost of funding), they ended up experiencing completely different IRRs. This suggests that having a good initial arbitrage metric is not always a reliable indicator of a deal's future performance.

Below are tables presenting the MVOC (AAA-B) and EQ NAV of EU CLO deals by vintage, based on asset prices...

The table below presents key performance metrics for 30 fully redeemed EU CLO deals, including time to call, estimated equity IRRs, annual distributions, final equity NAVs, and underlying portfolio annual default rates.

Below are tables presenting the MVOC (AAA-B) and EQ NAV of US BSL CLO deals by vintage, based on asset...

Regarding defaults, this deal experienced only three defaults since its inception, translating to an approximate 0.14% default rate per annum. If you are an investor in the CLO market, we would like to invite you to register with us using your business email address in order to gain access to our freemium service.