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.
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