As of September 30, 2024, the latest arbitrage metric was recorded at 226 bps. In fact, the arbitrage metrics have been range-bound between 220 bps and 230 bps since the end of June 2024.
US BSL CLOs: Weekly Arbitrage Metrics
Market Value Over-Collateralization (MVOC), for instance, at the BB tranche level, is calculated by dividing the collateral market value (MV) by the sum of CLO liabilities (AAA to BB). MVOC is a crucial point-in-time metric for pricing CLO-rated tranches, closely monitored by primary and secondary market participants. As of October 1, 2024, US BSL CLO managers who have done well based on the average MVOC percentile across 3-9 of their deals, include Silver Point, New Mountain Capital, and Whitebox Capital.
US BSL CLO Managers: Rankings Based on MVOC (BB)
As of 27 September 2024, the latest arb metric was recorded at 250 bps, significantly higher than the median value of 219 bps for 2023.
Monitor: EU CLO New Issue Arbitrage Trend
Please find the table below for the net interest margin (NIM) change year-to-date, by vintage, for reinvesting US BSL CLO deals with a reinvestment end date from October 1, 2024 onward.
US BSL CLOs: YTD Net Interest Margin Change
Please find the table below for the net interest margin (NIM) change year-to-date, by vintage, for reinvesting EU CLO deals with a reinvestment end date from 1 October 2024 onward.
EU CLOs: YTD Net Interest Margin Change
Managers who have been proactive in restructuring their seasoned deals whenever opportunities arise would be viewed favourably. Please refer to the table below for a full list of managers and the number of resets conducted on their seasoned BSL CLO deals from 2013 to 2021.
Resets: Seasoned Managers Who Have Done Well (Updated)
KKR has excelled in preserving the equity NAV of these two seasoned deals. Consequently, if the two deals were instead liquidated, the equity of Avoca CLO XI would deliver an IRR…
Avoca CLO XI and Avoca CLO XVI
Notably, EU CLO equity NAV metrics are stronger than those of US BSL CLOs across most vintages, with the exception of the 2020 and 2022 vintages.
US BSL and EU CLO MVOC and CLO Equity NAV Across All Tranches and Vintages
Market Value Over-Collateralization (MVOC), at the BB tranche level, is calculated by dividing the collateral market value (MV) by the sum of CLO liabilities (AAA to BB). MVOC is a key point-in-time metric for pricing CLO-rated tranches and is closely monitored by both primary and secondary market participants. As of September 20, 2024, EU CLO managers who have performed well, based on the average MVOC percentile across 2-6 of their deals, include Bridgepoint Credit Management, Neuberger Berman, and Brigade Capital Management.
EU CLO Managers: Rankings Based on MVOC (BB)
According to Pitchbook LCD, Barings announced yesterday that it is considering the potential liquidation of Barings Euro CLO 2014-1. This deal was originally issued on 15 April 2014, refinanced in January 2017, and subsequently reset in July 2018, extending its reinvestment period to 15 July 2022.
With the recent reset of OHA Credit Funding 9, the manager’s 10th reset across deals from 2013 to 2021, Oak Hill Advisors now ranks among those with the highest number of seasoned deal resets since mid-last year. Due to the strong performance of the deal, there was no requirement for new equity capital or a class X tranche. The post-reset total rated-liability notional remains unchanged at $552 million.
The table below illustrates the latest number and changes in the number of post-2012 US CLO deals that have failed at least one of the key tests—interest diversion, overcollateralization, or interest coverage tests—categorized by vintage.
List of US CLO Deals Failing OC/IC Tests, Categorized by Manager
Another interesting observation is that arbitrage picture and new CLO issuance do not always go hand in hand. The table below highlights that the arbitrage metric and issuance volume are not really correlated.
Monitor: US BSL CLO New Issue Arb Trend Since 2017
As of the August trustee report, its AAA factor was only 39.3%. However, thanks to the very tight spreads of 60 bps and 140 bps on its AAA and AA tranches, along with a relatively sizable fixed-rate AA tranche (1.6% coupon), its WACC remained attractive at 167 bps, though this will increase as the deal continues to delever.
Jubilee CLO 2014-XII: Equity IRR
The recent reset of Elmwood CLO V, the deal’s second reset, marked the manager’s impressive 15th reset since mid-last year. This deal was originally issued in July 2020 and reset in August 2021. Its performance from an MVOC perspective was solid…
If this deal is reset, the original Class E and F tranches are estimated to achieve IRRs of 7.7% and 10.5%, respectively. The manager has done a good job of preserving the principal value of the collateral pool.
Given the current strength of the loan market, it’s understandable that equity investors might consider calling the deal, particularly since the equity net asset value (NAV) has returned to its 2021 level.
Based on a sample of 75 EU CLO deals that have either already been redeemed or are expected to be fully redeemed soon, CLO equity tranches from the 2020, 2022, and 2023 vintages stood out, delivering impressive final IRRs supported by strong equity NAV metrics. As shown in the table above, their average equity NAVs exceeded 100%, highlighting robust performance.
Post-2013 EU CLO Equity IRRs: Static Deals, Reset vs. Non-Reset, and IRRs by Vintage (Updated)
Please find below the estimated US CLO equity IRRs of a sample of 123 US CLO deals that were redeemed in 2024 year-to-date, categorized by vintage. An issue price of $95 is assumed.
US CLO Equity IRRs: Deals Redeemed Year-to-Date (Updated)
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.
