Basic Premium

Below are tables presenting the MVOC (AAA-B) and EQ NAV of US BSL CLO deals by vintage, based on asset...

Overall, during the post-reinvestment period, the manager's average annualized prepayment rates for the first and second years are 8% and 13%, respectively. These rates are significantly lower than those of their peers, which are 16.2% in the first year and 26.1% in the second year.

The rate of paydown for CLO-rated debt after the conclusion of the reinvestment (RI) period is influenced by several factors. These include the behavior of the CLO manager, prevailing market conditions, and specific terms detailed in the CLO’s post-RI documentation. In addition, the composition of the collateral pool also plays a role.

To date, the manager has successfully reinvested almost all principal proceeds, effectively maintaining an annual prepayment rate of around 0-1%.

Below are tables presenting the MVOC (AAA-B) and EQ NAV of US BSL CLO deals by vintage, based on asset prices as of March 8, 2024.

As indicated in the table, the median deal has already achieved a cumulative distribution of 122%, with more than 2 years of the reinvestment period still remaining.

Below are tables presenting the MVOC (AAA-B) and EQ NAV of US BSL CLO deals by vintage, based on asset prices as of March 1, 2024.

These examples underscore the value of integrating loan market information to gain deeper insights into CLO AAA tranche pricing.

Outperforming the loan index over a sustained period of time is no easy feat.

It is interesting to note that the median US CLO equity NAV metrics by vintage have remained largely unchanged from one month ago, set against the backdrop of a very flat loan market, as illustrated in the graph below. In addition, it is observed that the median equity NAV from the 2018 vintage appears to be relatively low.

Notably, short-dated 'principal-driven' CLO deals that were called within 1.5 years have performed very well, with their average IRR standing at around 34.6%.

The table below illustrates the equity distributions for EU CLOs, based on a sample of 145 deals. All these deals have exited their reinvestment period by 31 January 2024. Unlike their US counterparts, the median distribution for EU CLOs has been trending higher. In the EU CLO market, many managers have been more successful at maintaining investments in the first and second years post-reinvestment.

The latest median equity distribution was 2.8%, representing a decrease of 60 basis points from the previous median quarterly distribution—a significant decline. This suggests that an increasing number of deals may become ripe for a call over the next few quarters. However, the decision to actually call them will depend on several other factors.

In terms of EUR notional exposure, fixed-rate exposure has increased by EUR 1.6 billion, due to the issuance of more CLOs since the beginning of 2023. If 2023 vintage deals were excluded, fixed-rate exposure would have decreased by EUR 0.3 billion. The following table presents the breakdown of the total EUR 19.4 billion exposure by manager.

Of these 207 US CLO deals, about 63 are better positioned for redemption as they have an equity NAV exceeding 10 percentage points, based on asset prices as of February 5, 2024. Most of these deals originate from the 2017 and 2018 vintages, as indicated in the table below. Market conditions are also conducive for a call. However, the final decision rests with the equity holders.