Previous articles in this series, titled “CLO Market Musings,” talked about the significance of the eventual equity NAV realisation for a regular arbitrage CLO deal (with a longer WAL) with the goal of delivering at least a double-digit IRR for CLO equity investors.
The accompanying table, based on 291 fully realized US CLO deals, demonstrates that a final equity NAV greater than 50% on average is needed to achieve a double-digit IRR for CLO equity tranches. It goes without saying that annual distributions have to be at a level that is at least somewhat satisfactory.
| Final CLO Equity IRR* | > 20% | B/w 15% and 20% | B/w 12% and 15% | B/w 10% and 12% | B/w 5% and 10% | B/w 0% and 5% | Less than 0% |
| Final NAV (Average) | 114.9% | 57.0% | 63.6% | 54.4% | 39.6% | 35.7% | 16.0% |
| Final NAV (Median) | 113.3% | 54.1% | 63.9% | 57.7% | 39.0% | 38.9% | 12.0% |
| Time to Call (Average) years | 1.8 | 5.3 | 4.9 | 5.2 | 5.7 | 5.8 | 5.8 |
* An issue price of $95 is assumed.
Related (premium) article:
Final Post-2012 US CLO Equity IRRs: NAV vs Annual Distributions
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.
