CLO Equity NAVs and MVOC Under Strain
The timing of the current market volatility is particularly challenging for many seasoned deals, which had already been impacted by successive waves of loan repricing and are now facing renewed pressure on NAVs.
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The timing of the current market volatility is particularly challenging for many seasoned deals, which had already been impacted by successive waves of loan repricing and are now facing renewed pressure on NAVs.
Weakness in the loan market has led to a broad-based widening of discount margins across the CLO capital structure, with lower mezzanine tranches exhibiting the greatest spread sensitivity — reflecting their structurally leveraged exposure to underlying credit risk. By contrast, senior tranches (AAA/AA) of top-tier primary CLOs show a beta of less than 0.3 to loan market movements, indicating more muted spread volatility in response to changes in collateral spreads. Trinitas Euro CLO IX priced particularly well, achieving a WACC of just 205 bps, supported by solid pricing on the AAA and AA tranches.
Although too much should not be read into last Friday’s BWIC trading colour for EU CLO AAA tranches—given the relatively small notionals involved—these trades still offer valuable insight into current secondary AAA pricing.
The recent pricing of Trinitas Euro CLO IX was particularly impressive, with a WACC of just 205 bps, compared to the estimated four-week average discounted spread of 442bps on the loan index.
This suggests that mezzanine and equity US CLO tranches are likely to become significantly more volatile than before. As of the time of writing, nearly 20% of US BSL CLO deals from the 2012–2013 vintages have MVOCs below 100%. With MVOCs under pressure, the reset market may effectively be closed to most seasoned deals.
A total of 330 US BSL CLO deals are now showing a negative equity NAV, including 97 deals from the 2018 vintage.
A sample of 1,426 US BSL CLO deals (vintage 2013–2023) is included in this study. Deals with a collateral pool...
A sample of 494 EU CLO deals (vintage 2013–1H 2024) is included in this study. Deals with a collateral pool...
As of April 4, 2025, the latest arbitrage metric for US CLOs was recorded at around 214 bps.
Amid the recent market rout, check out this latest rankings report to see how managers stack up based on asset prices as of 4 April 2025.
Amid the recent market rout, check out this latest rankings report to see how managers stack up based on asset prices as of April 4, 2025.
While this piece is no longer as timely given the recent market rout, it still offers some noteworthy insights.
Weakness in the loan market has led to a broad-based widening of discount margins across the U.S. CLO capital structure. Lower mezzanine tranches have shown the greatest sensitivity to spread movements, reflecting their structurally leveraged exposure to underlying credit risk. In contrast, senior tranches (AAA/AA) and the single-A tranche exhibit a beta of less than 1.0 to loan market movements, indicating more moderate spread volatility in response to changes in collateral spreads.
As anticipated, weakness in the loan market results in a broad-based widening of discount margins across the CLO capital structure, with lower mezzanine tranches exhibiting the highest spread sensitivity — reflecting their structurally leveraged exposure to underlying credit risk. By contrast, senior tranches (AAA/AA) typically display a beta of less than 1.0 to loan market movements, indicating more muted spread volatility in response to changes in collateral spreads.
Some of the larger managers in the top quartile include OHA, BSP, Allstate, BlackRock, Golub, and Oaktree.
