Freemium

Below are tables presenting the MVOC (AAA-B) and EQ NAV of EU CLO deals by vintage, based on asset prices as of 9 June 2023.

Tracking price buckets at 80/70/60 or below for CLO underlying collateral can be useful in assessing tail risk in the asset pool. Among these price buckets, those at 60 or below can be particularly valuable in identifying assets that are truly distressed. However, it’s still important to consider the impact of trading activity on these buckets, as CLO managers may have traded out of distressed assets to crystallize portfolio losses. Therefore, it’s important to evaluate a manager’s performance as a whole. The following tables show the price buckets at 80/70/60 or below for US and EU CLOs by vintage, based on asset prices as of 2 June 2023.

Typically, newer vintage deals tend to be ‘cleaner,’ but apparently, the 2021 EU CLO single-B MVOC metrics do not look as good compared to those of more seasoned deals (2016-2020). The median BB MVOC metrics are fairly similar across deals from 2013 to 2021, which also implies that older vintage deals have performed quite well compared to their newer counterparts.

Considering the current CLO equity NAV metrics for the seasoned deals, with approximately 58.1% of 2012-2018 deals having a negative equity NAV, it is highly unlikely that many of these deals would be redeemed anytime soon, even if their equity distributions are poor and they appear ripe for a call.

Typically, newer vintage deals tend to be 'cleaner,' but apparently, the 2021 EU CLO single-B MVOC metrics do not look as good compared to those of more seasoned deals (2016-2020). The next table shows the BB MVOC metrics for each semi-annual vintage. Notably, the 2H 2022 and 1H 2023 semi-annual vintage deals have some of the best MVOC metrics.

Considering the current CLO equity NAV metrics for the seasoned deals, it is highly unlikely that these deals would be redeemed, even if their equity distributions are poor and they appear ripe for a call.

The top-performing US CLO managers have been identified based on their total return alpha performance, as evaluated across a sample of 177 deals issued in 2021. Out of a total of 64 managers, the top five managers have been analyzed for their industry overweight/underweight. The table below illustrates their latest overweight/underweight standings.

Typically, newer vintage deals tend to be 'cleaner,' but apparently, the 2021 EU CLO equity NAV metrics do not look as good compared to those of more seasoned deals (2019-2020). Another noteworthy aspect that deserves emphasis is the positive dispersion observed in the BB MVOC and equity NAV metrics among the 2022 vintage deals. Specifically, the following deals have demonstrated significant success from the BB MVOC perspective.

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

The absence of CLO arbitrage has been garnering significant attention recently. This concept encompasses several facets, most notably the initial net interest margin of a CLO deal. However, in periods of loan market volatility, the importance of the initial net interest margin diminishes somewhat, as market participants redirect their focus towards the enticing potential rewards associated with the rise in equity NAV.

MVOC serves as a pivotal point-in-time indicator, shaping the pricing of CLO-rated tranches, while drawing the keen attention of primary and secondary market participants.

It is important to highlight the significant variation observed in the BB MVOC and equity NAV metrics across the 2022 vintage deals.

This article provides a comparative analysis of the investment strategies of three top-tier US CLO managers based on their total alpha performance from seasoned deals. The investment strategies are outlined in the latest Fitch Ratings’ CLO Asset Manager Handbook.

It is worth noting that even though deals 1 and 2 had a similar healthy initial arbitrage or net interest margin (portfolio weighted average spread net of cost of funding), they ended up experiencing completely different IRRs. This suggests that having a good initial arbitrage metric is not always a reliable indicator of a deal's future performance.

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