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With loan prices recovering to levels close to those seen before Liberation Day tariffs, a sizable equity BWIC list finally emerged last week after the April payment dates. It featured many high-quality equity tranches managed by top-tier managers such as Oak Hill Advisors, UBS AM, and CIFC.
This article highlights the softer CLO equity bids since late 2024/early 2025 and notes that not all resets are accretive.
Please see the table in this article for a list of EU CLO managers and the trends in their average percentiles since 28 March 2025.
Please see the table in this article for a list of US BSL CLO managers and the trends in their average percentiles since 28 March 2025.
Last Thursday (24 April 2025) saw 27 tranches of EU CLO AA bonds, with a total notional of €61.5 million, traded via BWIC. The table below provides colour on some of the AA bonds with top-tier prints. Based on these covers and a simple extrapolation, the term structure of EU AA bonds would appear as shown in the second table.
The table below presents the annualised (orig) prepayment rates for seasoned EU CLO deals with reinvestment periods (RP) ending in 2022 across the first, second, third, and fourth years post-RP. Typically, deals experience a single-digit prepayment rate in the first year post-RP. The median post-RP prepayment rate increased to 21.3%, although the range of post-RP prepayment rates is wide.
Around 34% of single-B tranches from the 2012–2022 vintages had an MVOC below 100% even before the recent volatility triggered by the Liberation Day tariffs. As of 24 April 2025, that figure has risen to 40%, or 151 deals across 49 managers, as shown in the table below.
While the Morningstar LSTA US B/BB Ratings Loan Index has recovered to just below 97 today—after hitting a low of...
Tuesday’s BWIC colour included three distressed bonds originally rated single-B: two were covered at 31h, and one at around 10h. Discount margins were not reported, as it is highly unlikely these bonds will be repaid at par—an IRR-based approach would be more appropriate. Pricing these thin tranches remains particularly challenging, as even a small change in the underlying collateral NAV can significantly affect their value.
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.
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.
A total of 317 US BSL CLO deals are now showing a negative equity NAV, including 95 deals from the 2018 vintage. Among single-B tranches, 169 out of 411 deals—or 41%—have an MVOC below par.
Late last week, approximately $240 million of long-dated AAA tranches (with reinvestment periods ending between 2029-2030) changed hands, as shown in the table below. Top-tier prints were mainly in the 150 DM area. For example, MAGNE 2024-42A A1 traded with a cover bid of 150 DM.
Whether it makes sense or not depends on the WAP of the CLO portfolio purchased. The table below illustrates the arbitrage levels under various WAP scenarios.
The table below shows the impact of the recent dislocation on the mark-to-market (MTM) of a typical top-tier primary deal priced around two months ago. So far, the AAA–AA tranches have held up well, showing resilience with price movements smaller than those of the loan index over the same period. The BB tranche, however, was more severely impacted due to its very tight coupon and the long WAL of the tranche.
