As shown in the table below, across all issuance years, the median IRRs of EU CLO equity tranches were higher than their corresponding median BB tranches. However, BB tranches tend to exhibit a more stable IRR profile and demonstrated better IRR performance at the 25th percentile for deals from 2015, 2016, 2017, 2018, and 2022.
Apart from the 11 deals previously mentioned, there are 20 additional deals, as outlined in the table below, that would experience impairment in their BB tranches under a scenario in which underlying assets...
Please refer to the tables below for historical new issue pricing data of EU CLO BB–B across various market conditions.
To provide context for the DM (discount margin) figures, consider the following: when the spread of the 4-week Morningstar LSTA U.S. B/BB Ratings Loan Index ranged between 390 and 420 basis points (bp) – which aligns with today’s level – the average pricing for the BB tranche was at 699 bp, with the median at 701 bp, as shown in the table below. This data is derived from a sample of 503 deals, managed by 20 US BSL managers, spanning from 2012 to 2023.
Recent primary CLO and reset prints at the BB level suggest that demand for BB is very strong. Anecdotally, it appears that numerous investors in the market have a preference for the risk-return ratio of the BB tranche. The carry is solid, and the BB tranche has demonstrated resilience across various credit cycles.
Please see the chart below that displays the DM pricing range (45th to 55th percentile) of primary EU CLO BB tranches...
