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US BSL CLOs: Latest OC (BB) Test Cushions by Vintage

Excess CCC buckets, defaults, discount obligations, and losses from trading can all reduce the OC ratio. Typically, OC test cushions decrease over time as deals mature. The tables above display the OC (BB) test cushions, segmented by vintage year, based on Intex runs from January 22, 2024, and previously from November 17, 2023.

Behind the Numbers: 2018 US CLOs and Their Purchase Annualized Rates During the Post-Reinvestment Period 

The table is structured with the first column listing the percentiles of the prepayment and purchase rates. The second column displays the actual annualized prepayment rates during the post-reinvestment (RI) period. The third column reveals the annualized prepayment rates during this period, assuming no purchases were made. The final column illustrates the annualized purchase rates during the post-RI period.

Behind the Numbers: 2018 EU CLOs and Their Reinvestment Annualised Rates During the Post-Reinvestment Period (Part 2)

The table below provides a succinct summary of prepayment and reinvestment metrics for a collection of 16 EU CLO deals from 2018, with reinvestment end dates spanning from May 2022 to August 2022. It’s notable that the median prepayment rates were markedly low, at a mere 1% and 3%, respectively, for year 1 and 2 during the post-reinvestment period, primarily because most managers engaged in asset acquisitions at a median annualised rate of 15% and 21%, respectively, for year 1 and 2.

Behind the Numbers: 2018 EU CLOs and Their Reinvestment Annualised Rates During the Post-Reinvestment Period (Part 1)

The first column in the table displays the actual annualised prepayment rates, the second column reveals the annualised prepayment rates assuming no purchases were made during the post-reinvestment (RI) period, and the third column illustrates the annualised purchase rates during the post-RI period. It's notable that the median prepayment rate was markedly low, at a mere 2%, primarily because most managers engaged in asset acquisitions at a median annualised rate of 12%. Hypothetically, should all managers have refrained from reinvesting, the median annualised prepayment rate would have escalated to 15%.

Higher OC Test Cushions Bode Well for Performance, But Not Always

Typically, deals with high OC (BB) test cushions are expected to perform well, though this is not always the case. The median deal with an OC test cushion of 4 to 5 percentage points performed well, achieving 15 basis points (bp) of alpha. Deals with a small OC test cushion experienced more significant underperformance. Among deals with less than 1 percentage point of cushion, approximately three-quarters performed poorer than the loan index.

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