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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.
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.
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.
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.
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.
This article focuses on US BSL CLO deals that exited their reinvestment period (RP) in 2023, based on a sample of 386 deals. As shown in the table below, the median annualised prepayment rate was 20% in year 1, with a wide range—from 12% to 27%—based on the 25th and 75th percentiles. In year 2, the median annualised prepayment rate rose to 34%, while the interquartile range narrowed compared to year 1.
As these deals exited their reinvestment periods in 2022—a year marked by significant volatility—27 out of 67 managers sustained average single-digit annualised prepayment rates across their deals in the first year post-RP, as shown in the table below.
