Basic Premium

Those with available capital, or 'dry powder,' often find themselves at an advantage. Indeed, deals yielding good returns were typically priced during periods of substantial market volatility.

Assets maturing in 2024 and 2025 necessitate more immediate attention, and to some extent, those maturing in 2026 do as well. As of 16 October 2023, approximately EUR 1.4 billion of assets maturing in 2024 were quoted below a 98 price. Similarly, around EUR 6.1 billion of assets maturing in 2025 were quoted below the 98 price.

Among the managers with more than $5 billion in US CLO AUM, Oak Hill, Redding Ridge, Elmwood, AGL, Sixth Street, Irradiant, Oaktree, Ballyrock, and Partners Group all demonstrate favorable reinvestment profiles.

The table below offers a detailed breakdown of the reduction in 2024 and 2025 maturities, categorised by manager. Fifteen managers decreased their 2024 and 2025 maturities by at least EUR 0.5 billion each, collectively contributing to a EUR 12.4 billion reduction.

Notably, Redding Ridge, Hayfin Capital, Partners Group, Oaktree Capital, Invesco, Sound Point Capital, Napier Park and Permira Debt Managers all exhibit favourable reinvestment period profiles.

The table in this article shows the US BSL CLO asset maturity wall as well as asset notional amounts in CLO deals, segmented by different current WAL test cushions.

The table in this article shows the US MM CLO asset maturity wall as well as asset notional amounts in CLO deals, segmented by different current WAL test cushions.

It is encouraging to observe the year-to-date (YTD) upward trend in the reported collateral spreads for MM CLOs, based on...

The recent pricing of a 5-year reinvestment period deal – OHA Credit Funding 16 CLO – heralds a new tight BB level (SOFR + 675DM) since late 2015, when Madison Park Funding XVIII’s BB tranche was priced at 635DM (based on LIBOR), adjusting for market conditions.

When looking at the alpha performance in each category, it's clear that larger EU CLO managers are not doing worse than their smaller peers. In fact, they performed slightly better.

The chart below depicts the average alpha metric trends for deals with horizontal slice risk retention (manager's retention) and deals with vertical strip risk retention (third-party majority equity). Interestingly, deals with vertical strip risk retention consistently outperformed their counterparts. However, more recently, their median performance metrics have shown convergence. As of the latest reading on September 6, 2023, the median deal with horizontal slice risk retention slightly outperformed the median deal with vertical strip risk retention.

Debt investors generally prefer a quicker prepayment rate, as this results in a faster pull to par. Conversely, a slower prepayment rate would lead to a longer duration of the debt tranches and potentially higher price volatility if the MVOC is also low. On the other hand, CLO equity investors would prefer to see low prepayment rates, especially during the first two years following the reinvestment period.

The WACC for the most recent US BSL CLO reset deal was priced at approximately 228 basis points (bp). The table below lists a total of 96 deals from 2022 with a WACC exceeding 240 bp. These deals offer a potential cost savings of at least 12 bp. This figure aligns with the cost savings of 12 bp, which corresponds to the 25th percentile, observed in the reset pricing of 2019 vintage deals.

The WACC for the most recent EU CLO deal, which included a single-B tranche, was priced at approximately 285 basis points (bp). The table below outlines a total of 20 deals from 2022 that feature a WACC exceeding 294 bp. These deals present a potential cost savings of at least 9 bp. This figure aligns with the cost savings of 9 bp, which corresponds to the 25th percentile, observed in the reset pricing of 2019 vintage deals.

Despite the EU's lower interest rate environment, we have observed that EU CLO equity tranches in reset deals have exhibited higher median annual distributions than their US counterparts across vintages from 2013 to 2015 and 2017 to 2018.