Recent Findings on MVOC and Equity NAV
Based on asset prices as of 14 Oct 2022 –
- 48.4% of a sample of 1431 US BSL CLO deals have a negative equity NAV and 100.0% of a sample of 456 EU CLO deals have a negative equity NAV.
- The current CLO equity NAV metrics do not look good at all for both US and EU CLOs – that said, CLOs are long-term vehicles. If a CLO has a good runway of reinvestment period as well as WAL and legal maturity cushions, managers can potentially take advantage of the market volatility and improve over time the underlying collateral spreads and interest returns that can more than compensate for any credit losses due to trading or defaults.
- Older vintage CLO deals with limited reinvestment flexibility would suffer more in today’s market. Unlike 1.0 CLO deals, for a post-2012 CLO deal to deliver a decent equity IRR, the final NAV realisation plays a critical role.
- At the BBB tranche level, 0.3% of US BSL CLO deals have a below 100% MVOC.
- At the BB tranche level, 38.2% of US BSL CLO deals have a below 100% MVOC, while 96.9% of EU CLO deals have a below 100% MVOC.
- At the single B tranche level, 88.4 % of US BSL deals with a single B tranche have a below 100% MVOC based on a sample of 301 deals, while 100.0% EU CLO deals have a below 100% MVOC based on a sample of 443 deals.
- Generally speaking, MVOC is one part of the story when it comes to CLO tranche valuation, as market participants also look at whether a deal has an above-average or below-average less than 70 or 80 price bucket at the collateral level, among other factors.
- CLOs are managed vehicles; hence, managers’ investment performance is key as they can either add or hurt value by trading on top of credit losses due to default rates.
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.