Freemium

Approximately one year ago, the CLO industry pondered where new-issue US CLO AAA spreads would land by the end of 2023. As we look ahead, what are your predictions for how the new-issue CLO AAA spreads will evolve by the end of the first half of 2024?

The table below presents some median metrics for each quartile of managers’ performance, based on their annualised alpha metrics from issue dates to 27 November 2023.

Generally, it's assumed that larger managers who buy the market might not perform well. However, an analysis of average alpha performance across categories reveals that larger US CLO managers have consistently outperformed their smaller counterparts, as evidenced by a sample of seasoned deals from 2015 to 2019.

Please see the chart below that displays the DM pricing range (45th to 55th percentile) of primary EU CLO BB tranches...

Please see the chart below that displays the DM pricing range (45th to 55th percentile) of primary US BSL CLO BB tranches...

Equity-friendly deals can typically expect a slower pay-down rate in the first and second years of the post-reinvestment period. These suggested annualized prepayment rates are derived from median metrics.

Please refer to the table below for a list of EU CLO managers and their assets under management (in billions). In addition, the table indicates the number of days since each manager last priced a primary deal, as of 30 September 2023. This information is based on data sourced from LCD and Intex.

Drawing upon EU CLOs from 2013-2022, the underlying collateral maturities for 2024 have witnessed a YTD decline of 67%, a figure attributable to refinancing and extension activities, as well as the redemption of CLOs.

Coincidentally, based on US BSL CLOs from 2012-2022, 2024 underlying collateral maturities experienced a decline of 71%, attributable to the redemption of CLOs, as well as refinancing and extension activities.

Estimating long-term annual default rates and an average recovery rate is an intricate process. At CLO Research, we employ the loan index to aid in estimating the annual credit loss rate inputs required for CLO cashflow modelling. This credit loss rate incorporates factors such as prepayment, trading losses, and reinvestment.

Given the similarity in average annual sale volumes between these two sets of managers, it becomes apparent that the volume of trading has limited influence on the alpha performance of managers, as per the findings of this study. It is worth noting that both active and less active managers, in terms of trading activities, are well represented in both the upper and lower segments of manager performance.

Blackstone stands at the forefront as the leading EU CLO manager, with a substantial AuM of €11.8 billion. CVC Credit Partners secures the second spot among EU CLO managers, boasting an impressive AuM of €10.8 billion. Meanwhile, the Carlyle Group holds a strong position as the third-ranked EU CLO manager, managing an AuM of €10.6 billion.

Please see the table below for the full list of US CLO managers and their assets under (US CLO) management (billion) as of 30 June 2023 based on LCD and Intex data. If you’re an investor in the CLO market, we would like to invite you to register with us using your business email address to gain access to our freemium service. Our freemium service is designed to provide you with a glimpse into the value of our premium content and help you gain valuable insights and perspectives in a complex and dynamic market.

The following table provides a summary of the cumulative CLO equity distributions for 140 deals that have experienced failure in one or more of the crucial tests, namely interest diversion, overcollateralization, or interest coverage tests. Approximately three-fourths of these 140 deals have cumulative equity distributions of less than 100%.

Below are tables presenting the MVOC (AAA-B) and EQ NAV of EU CLO deals by vintage, based on asset prices as of 16 June 2023.