EU CLOs: Impact on Equity Distributions from Funding Delayed-Issuance Single-B Tranches
The following EU CLO deals issued and priced their single-B tranches this year. These were initially structured for delayed issuance...
The following EU CLO deals issued and priced their single-B tranches this year. These were initially structured for delayed issuance...
Gain invaluable insights from this updated article, which explores the equity internal rates of return (IRRs) of over 500 US CLO deals. It highlights managers who have adeptly handled these deals, demonstrating equity IRRs exceeding the 12.0% threshold.
Despite the EU's lower interest rate environment, we have observed that EU CLO equity tranches in reset deals have exhibited higher median annual distributions than their US counterparts across vintages from 2013 to 2015 and 2017 to 2018.
US CLOs generally enjoy a competitive edge over their EU counterparts in the realm of equity distributions, primarily due to a more favorable interest rate environment in the U.S. Nevertheless, despite the disadvantage posed by the EU's lower interest rate environment, CLO deals from 2017 and 2018 in the EU display notably better NIM and first distribution metrics. These strong figures effectively offset this drawback, as highlighted by their robust annual distributions.
Non-reset seasoned deals from 2012 to 2016 exhibited considerably poorer performance compared to their reset counterparts.
For the older vintage deals, the median annual distributions were largely in the 13-15% range. However, the median 2014 and 2015 vintage deals stood out with impressive 14.5-14.9% annual distributions. If the 2014 median equity tranche can be sold at a price of EUR 34, then the primary equity investor would achieve the target 12.0% IRR over an 8.7-year period, assuming an issue price of EUR 95.
