CLO Research

Previous articles in this series, titled "CLO Market Musings," talked about the significance of the eventual equity NAV realisation for a regular arbitrage CLO deal (with a longer WAL) with the goal of delivering at least a double-digit IRR for CLO equity investors. The accompanying table, based on 291 fully realized US CLO deals, demonstrates that a final equity NAV greater than 50% on average is needed to achieve a double-digit IRR for CLO equity tranches. It goes without saying that annual distributions have to be at a level that is at least somewhat satisfactory.

Please find below tables presenting the MVOC (AAA-B) and EQ NAV of EU CLO deals by vintage, based on asset prices as of 17th February 2023.

Market Value Over-Collateralisation (MVOC), for instance, at the BBB tranche level, is calculated by dividing the collateral MV by the sum of CLO liabilities (AAA to BBB). MVOC is a crucial point-in-time metric for pricing CLO-rated tranches, closely monitored by primary and secondary market participants. Calculating CLO Equity NAV involves dividing the residual collateral value (MV collateral net of total CLO debt notional) by the equity tranche notional. In today’s market, older vintage CLO deals with limited reinvestment flexibility may suffer more. For post-2012 CLO deals to deliver a decent equity IRR, the final NAV realization plays a crucial role.

This study expands its analysis to include a sample of 90 more recent deals (closed in 2021) managed by 46...

The European leveraged loan market has returned to levels last seen in early June 2022. Primary EU CLOs were priced at around 140/240/385/570/875/1150 bps (from the triple-A to single-B notes) at that time. The last EU CLO new issue was priced at 165/300/400/600/850/not offered. If the loan market rally can be sustained and other technical factors are favourable, it would not be surprising to see lags in CLO pricing resolved.

With rising rates, CLO equity tranches face more competition from lower mezzanine tranches. One of the main reasons investors like CLO equity is its quarterly cash-on-cash distributions. That said, with rising interest rates, lower mezzanine tranches are becoming a real alternative to equity tranches.

The tables below show the MVOC (AAA-B) and EQ NAV of US BSL CLO and EU CLO deals* by vintage...

CLO MVOC metrics have all improved considerably across the board YTD (as shown in the tables below). Consequently, CLO debt...

The final IRR of a 2.0 CLO equity tranche very much depends on the final equity NAV realisation. There are 20 US CLO managers with at least one deal registering an IRR of over 15%.

For the first time in many months, the median CLO equity NAV metrics are positive across vintages.

Tracking the below 80/70/60 price buckets at the CLO underlying collateral level is useful as it highlights the tail risk of the...

Please see the table below for the latest number of post-2012 US CLO deals with failing ID/OC test(s) by vintage....

Please see the table below for the latest list of US CLO deals (post-2012) with failing ID/OC test(s). Quite a number of these deals would see rated debt impairment eventually.

The table below shows the latest industry overweight/underweight for each seasoned manager based on a sample of 309 seasoned deals...

Tracking the below 80/70/60 price buckets at the CLO underlying collateral level is useful as it highlights the tail risk of the...