Understanding The Commonly Used CLO Deal Metrics and Their Limitations (Updated)
In conclusion, it is important to understand the limitations of each metric so as to avoid mistaking outperformance of deal metrics to be investment outperformance.
“CLO Research is dedicated to providing truly impartial, first-hand CLO research that is specifically tailored to meet the needs of the investment community. We offer manager scoring based on actual relative return performance, which we believe is a more accurate reflection of a manager’s ability to deliver alpha than simply relying on deal metrics.”
In conclusion, it is important to understand the limitations of each metric so as to avoid mistaking outperformance of deal metrics to be investment outperformance.
A significant number of US BSL CLO deals are candidates for reset due to their overall high cost of funding....
Recently, the arbitrage metric for new-issue US CLOs has exhibited a downward trend. It is noteworthy that when GoldenTree Loan...
The US CLO arbitrage (arb) has remained largely rangebound since July 2023. However, recently, there has been a noticeable downward trend in the arbitrage metric for new-issue US CLOs.
The challenge of resetting increases if the deal experiences a significant decline in the market value of its collateral due to poor performance, defaults, and trading losses. Pricing the reset for long-dated liabilities, especially at the mezzanine level, would become prohibitively expensive, even in favorable market conditions. In addition to the higher costs for the reset CLO liabilities, extra capital in the form of unrated debt or equity will be necessary. Typically, most equity investors would not want to put in new money to go after ‘bad’ money.
Seasoned EU CLO managers achieved, on average, positive alpha in 20 out of the 49 months covered by CLO Research's...
AAA tranches may not be as intriguing as mezzanine and equity tranches in terms of their risk profile, yet they...
So, the question remains: why are US BSL CLO AAA prints still stagnant at 150 bp for managers with top-tier AAA prints?
Recently, Golub Capital CLO 71 (M) was priced at 195/260/325/510 for its AAA/AA/A/BBB tranches, respectively. Given the size of the deal, achieving these pricing levels was impressive.
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Recent primary US CLO and reset prints at the AAA–BBB levels suggest that these levels are largely consistent with historical averages.
Recent primary CLO and reset prints at the BB level suggest that demand for BB is very strong. Anecdotally, it appears that numerous investors in the market have a preference for the risk-return ratio of the BB tranche. The carry is solid, and the BB tranche has demonstrated resilience across various credit cycles.
Last week, GoldenTree achieved a notable AAA print of 150 bp, marking the tightest level since May 2022. This achievement can be attributed to the manager’s established track record, its tier-one status, and the strong demand for AAA.
The table below displays a list of the top 15 largest global CLO managers, ranked by their CLO assets under management (AUM) in USD billion as of December 31, 2023.
The table below displays a list of the top 30 largest US CLO managers, ranked by their US CLO assets under management (AUM) in USD billion as of December 31, 2023.
