Basic Premium

The table below presents the discount margin differential pricing for 2.0 CLO AAA–BB tranches by vintage. Evidently, based on a sample of non-short-dated deals with available discount margin data, 2024 emerged as the year with the narrowest AAA–BB pricing differential.

As shown in the table below, it is hardly surprising that a robust underlying loan market, coupled with many CLOs...

From a sample of 506 deals, 27 EU CLO managers oversee deals with both vertical and first-loss risk retention.

Below is a table showing the published average total (senior + junior) management fee breakdown by vertical compared to first-loss risk retention deals for each EU CLO manager.

A sample of 1,460 US BSL CLO deals (vintage 2013–2023) is included in this study. Deals with a collateral pool factor below 60% are excluded.

A sample of 506 EU CLO deals (vintage 2013–1H 2024) is included in this study. Deals with a collateral pool factor below 60% are excluded.

The table below presents the estimated historical median pricing DMs for AAA, AA, A, BBB, and BB tranches when the...

The loan index’s moving 4-week average discounted spreads are used as a proxy for the discounted spreads of US BSL CLO portfolios. If the index prices fell below 96, 4-year discounted asset spreads were used instead of spreads to maturity. Arbitrage refers to the index’s discounted spread net of the cost of funding, based on discount margins (of AAA–BB tranches of top-tier deals) rather than spreads. New issue upfront costs and management fees are not accounted for. The loan index used for this analysis is the Morningstar LSTA US B-BB Ratings Loan Index.

As illustrated in the table below, it is unsurprising that when the underlying loan market was strong, more CLO deals were liquidated, institutional loan issuance increased—providing additional collateral assets for CLO creation—and demand for CLOs grew as investors became more optimistic about the credit outlook. Combined with a higher interest rate environment and greater demand for floating-rate assets, these factors contributed to a record-breaking year for new issue CLO volume in 2024.

The loan index’s moving 4-week average discounted spreads are used as a proxy for the EU CLO portfolios’ discounted spreads. Arbitrage refers to the index’s discounted spread net of the cost of funding, based on discount margins (of AAA–B tranches) rather than spreads. Upfront costs and management fees are not accounted for. The loan index used for this analysis is the Morningstar Euro-denominated Leveraged Loan Index.

Asset spreads play a significant role in influencing AAA issuance spreads, though the relationship is not always perfectly linear due to factors such as the demand and supply of AAA notes. This article notes that current top-tier AAA levels, at approximately 124–126 bps, are elevated compared to historical norms.

Since the reset window reopened in mid-2023, managers have actively utilised the reset market to extend the duration of their existing deals. Impressively, seven managers successfully reset at least 10 of their seasoned deals spanning the 2013–2021 vintages. Among them, Oak Hill and CIFC stand out, having reset 15–16 of their seasoned deals during this period.

Market Value Over-Collateralization (MVOC), for instance, at the BB tranche level, is calculated by dividing the collateral market value (MV) by the sum of CLO liabilities (AAA to BB). MVOC is a key point-in-time metric for valuing CLO-rated tranches, widely tracked by participants in both primary and secondary markets.

Market Value Over-Collateralization (MVOC), for instance, at the BB tranche level, is calculated by dividing the collateral market value (MV) by the sum of CLO liabilities (AAA to BB). MVOC is a crucial point-in-time metric for pricing CLO-rated tranches, closely monitored by primary and secondary market participants.

CLO managers, on average, have closely tracked the loan index in 2024, following a period of relative outperformance of 10–20 bps from 2021 to 2023.