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.
The rate of paydown for CLO-rated debt after the conclusion of the reinvestment (RI) period is influenced by several factors. These include the behavior of the CLO manager, prevailing market conditions, and specific terms detailed in the CLO’s post-RI documentation. In addition, the composition of the collateral pool also plays a role.
To date, the manager has successfully reinvested almost all principal proceeds, effectively maintaining an annual prepayment rate of around 0-1%.
To illustrate these trends, the following table presents the average first-year and second-year annualised prepayment rates for each manager, drawing on data from their seasoned deals that have passed their reinvestment end dates.
The following table presents the average first-year and second-year annualized prepayment rates for each manager, drawing on data from their seasoned deals that have passed their reinvestment end dates.
Several conclusions can be drawn from the chart. In particular, it appears that debt investors did not really price in the different post-reinvestment prepayment rates given the generic pricing assumptions for new issue deals. This raises the question: Should managers with higher post-reinvestment prepayment rates be priced tighter than those with lower rates?
