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It is not a surprise that a better-annualised par build number does not necessarily translate to better investment performance. As shown in the graph, EU CLO managers with very similar levels of annualised par build metrics actually see very different MV return alpha performance.
Over US$220 bn of US CLOs would potentially become static if the reset market is not open for business over the next year.
As of 31 Oct 2022, the total size of the EU CLO market stood at around €200.3 billion.
Primary and secondary market participants focus a lot on this number – a point in time metric – as it is an important metric for pricing CLO-rated tranches. Put another way, CLO-rated tranches do trade on the back of the loan market.
Managers can build par by buying a loan at a discount at say 85c and have it treated at par for the calculation of OC ratios. On the other hand, managers can also burn lots of par by trading out of more distressed credits.
Please see the table for the list of 50 largest global CLO managers and their CLO AUM breakdown by US and EU CLO AUM as of 30 Sep 2022.
The table above shows the relationship between managers’ median WARF and their average Q3 2022 total annualized return alpha.
US CLO managers are paid around 40bp per annum, but their return performance can vary significantly.
As of 30 Sep 2022, the total size of the US CLO market stood at around $957.8 billion. Top 5 US CLO managers by CLO AUM are Carlyle, Blackstone, Golub, CSAM and CIFC.
As of 30 Sep 2022, the total size of the EU CLO market stood at around EUR198.6 billion.
Primary and secondary market participants focus a lot on this number – a point in time metric – as it is an important metric for pricing CLO-rated tranches.
CLO Equity NAV is calculated by dividing the residual collateral value (MV collateral net of total CLO debt notional) by the equity tranche notional.
The median 'below 80 price bucket' metrics have edged higher for EU CLOs over the week across vintages. At a median of 4.0%, the below 80 price bucket looks pretty high for the most recent 2022 vintage.
Tracking the below 80 price bucket at the CLO underlying collateral level is a good exercise as it highlights the tail risk...
Market Value Over-Collateralisation (MVOC), for instance, at the BBB tranche level, is calculated by dividing the collateral MV by the sum of CLO liabilities (AAA to BBB).
