Although every CLO deal is unique, analysing historical prepayment rates during the post-RP period is valuable. It reveals manager tendencies, distinguishing those who consistently deliver lower prepayment rates from those with higher rates.
From the perspective of debt investors, a more rapid prepayment rate is typically preferable following the reinvestment period (RP). A low post-RP prepayment rate would increase the credit exposure of the underlying collateral pool and prolong the duration of the CLO debt tranches. The rate of post-RP paydown is particularly relevant today, given that debt tranches are currently priced at relatively tight levels. The following table presents the average first-year, second-year, and third-year annualized prepayment rates for each manager, based on data from their seasoned deals that have their reinvestment end dates ending before January 2024.
The rate of paydown for CLO-rated debt after the conclusion of the reinvestment period (RP) is influenced by several factors....
While each CLO deal is different, understanding the historical prepayment rates during the post-RP for each manager remains highly beneficial. Analysing these rates offers insights into the tendencies of different managers, highlighting those who consistently achieve lower prepayment rates and those who tend to experience higher rates in the post-reinvestment phase. In particular, 12 EU CLO managers have kept their annualised prepayment rates in the single digits for the first and second years post-RP, as shown in the table below. Among them, 5 managers have so far demonstrated the ability to keep annualised prepayment rates in the single digits for the first to third years post-RP.
While each CLO deal is different, understanding the historical prepayment rates based on the original collateral balance during the post-RI period for each manager remains highly beneficial. Analyzing these rates offers insights into the tendencies of different managers, highlighting those who consistently achieve lower prepayment rates and those who tend to experience higher rates in the post-reinvestment phase. To illustrate these trends, the following table presents the average first-year, second-year, and third-year annualized prepayment rates for each manager, based on data from their seasoned deals that have passed their reinvestment end dates. These historical post-RI prepayment rates could be useful as cash flow modeling inputs for each manager.
Overall, during the post-reinvestment period, the manager's average annualized prepayment rates for the first and second years are 8% and 13%, respectively. These rates are significantly lower than those of their peers, which are 16.2% in the first year and 26.1% in the second year.
