Redeemed EU CLO IRRs – A Comparison of Reset and Non-Reset Deals (Updated)
Across these vintages, reset deals outperformed their non-reset counterparts, underscoring the value of resetting.
Across these vintages, reset deals outperformed their non-reset counterparts, underscoring the value of resetting.
Among 121 EU CLOs that have been, or are expected to be, fully redeemed, equity tranches from the 2020, 2022, and 2023 vintages stand out with strong final IRRs and average equity NAVs above 100%. The analysis also compares outcomes between first-loss and vertical risk retention deals, which so far have shown broadly similar performance. By vintage, reset deals outperformed non-resets across 2013–2016, underscoring the value of resetting.
In recent months, a strong loan market, marked by elevated loan prices and ongoing repricing activity, has prompted the redemption of several seasoned EU CLO deals. This article examines a sample of seven EU CLOs that have recently been redeemed.
The AAA tranche was last refinanced in early 2021 at a very tight level of 3M EURIBOR + 64 bps. As of the May trustee report, its factor stood at 57%. During the post-reinvestment period, annual prepayment rates were 3.8% in the first year and 26.4% in the second. Investcorp has already called many seasoned deals in the third year post-RP, and this would add to that list.
Among 123 EU CLO deals that have been or are likely to be fully redeemed, equity tranches from the 2020, 2022, and 2023 vintages stood out with strong final IRRs and average equity NAVs above 100%, as shown in the table above. 11 of the deals were static, with an average IRR of 30.9%. Seven of these were managed by Palmer Square. Static deals can do well in volatile markets by capturing the pull to par of the loan portfolio. If the market stays weak, slower prepayments help preserve leverage—supporting stronger annual distributions. On average, EU CLO managers have met equity investor expectations, with redeemed or soon-to-be-redeemed deals delivering an average equity IRR of 12.3%. This reflects a mix of disciplined issuance, timely resets (notably for 2014–2016 vintages), resilient loan performance, manager expertise, and low liability costs.
On average, EU CLO managers have met the expectations of their equity investors. Overall, based on deals that have already been redeemed or are anticipated to be redeemed, EU CLOs have delivered good performance, with an average equity IRR of 12.4%. This success can be attributed to a combination of factors, including disciplined issuance spurred by risk retention requirements, resets of more seasoned deals such as those from 2014 and 2015, the resilience of the underlying loan performance, the expertise of the managers, favourable CLO liability costs, and attractively priced assets, among others.
