CLO deals are typically called during periods of strength in the loan market. For instance, approximately 85% of the more than 280 post-2012 US CLO deals were called when the Morningstar LSTA US B/BB Ratings Loan index reached levels between 98.5 and 100. However, there have been recent instances of US CLO deals that deviate from this trend, as they were called when the loan index was below approximately 96, placing them in the 5% outlier category.
In Europe, a few CLO deals were also called recently, and notably, they were considered better deals due to the presence of ample cushion in their portfolio net asset value (NAV), which could cover all the debt tranches.
Furthermore, in Europe, there has been a reported approval of a weighted average life (WAL) test extension for one EU CLO deal that has passed its reinvestment period by the controlling class. While the WAL test extension is particularly beneficial during the reinvestment period of a deal, it still remains useful, especially considering the expected increase in amend-to-extend activities in the future.
Disclaimers
The information, research, data, research-related opinions, observations, and estimates contained in this document have been compiled or arrived at by CLO Research Group, based upon sources believed to be reliable and accurate, and in good faith, but in each case without further investigation. None of CLO Research Group or its service providers; authorised personnel, or their directors make any expressed or implied presentation or warranty, nor do any of such persons accept any responsibility or liability as to the accuracy, timeliness, completeness, or correctness of such sources and the information, research, data, research related opinions, observations and estimates contained in this document. All information, research, data, research-related opinions, observations, and estimates in this document are in draft form as of the date of this document and remain subject to change and amendment without notice. Neither CLO Research Group nor any of their third-party providers shall be subject to any damages or liability for any errors, omissions, incompleteness, or incorrectness of this document. This article is not and should not be construed as an offer, or a solicitation of an offer, to buy or sell securities and shall not be relied upon as a promise or representation regarding the historical or current position or performance of any of the deals or issues mentioned in it.
