Tag Archives: CLO Equity IRR

Notably, short-dated 'principal-driven' CLO deals that were called within 1.5 years have performed very well, with their average IRR standing at around 34.6%.

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.

Another noteworthy aspect of the deal is that, while its reinvestment period ended in early 2020, it managed to maintain a very low prepayment rate of around 3-4% p.a. during the first two years of the post-reinvestment (post-RI) period.

Madison Park Funding XLI (formerly Atrium XII) deal was recently called. This deal, managed by CSAM, was closed in late 2015. The deal’s average equity distribution was very impressive, at 19.1% over a period of around 8 years. This deal did a reset in late 2017, reduced its cost of funding significantly, and distributed excess par upon reset. The deal's solid first distribution of 17.2% certainly helped boost the average annual distribution too. Without the par distributions, the deal's annual distribution would likely be around the 17% mark rather than in the 19% area.

York CLO-1 has been redeemed, and its equity tranche is expected to surpass the 12% IRR threshold, leading the manager to receive an incentive fee. The redemption of this deal in today’s market conditions highlights its strong performance.

The absence of CLO arbitrage has been garnering significant attention recently. This concept encompasses several facets, most notably the initial net interest margin of a CLO deal. However, in periods of loan market volatility, the importance of the initial net interest margin diminishes somewhat, as market participants redirect their focus towards the enticing potential rewards associated with the rise in equity NAV.