This suggests that mezzanine and equity US CLO tranches are likely to become significantly more volatile than before. As of the time of writing, nearly 20% of US BSL CLO deals from the 2012–2013 vintages have MVOCs below 100%. With MVOCs under pressure, the reset market may effectively be closed to most seasoned deals.
The table in this article illustrates the average gross annualised return on underlying CLO collateral and the annualised cost of funding (inclusive of management fees) for each quarterly vintage of deals closed in 2022. On average, deals closed in the third and fourth quarters of 2022 saw a higher collateral return that more than compensated for the corresponding rise in their funding costs.
Those with available capital, or 'dry powder,' often find themselves at an advantage. Indeed, deals yielding good returns were typically priced during periods of substantial market volatility.
US CLO Managers: WARF and Volatility of Alpha A sample of 270 US CLO deals (closed between 2016 and 2018) is...
"Common sense is the collection of prejudices acquired by age eighteen." – Albert Einstein US CLO Managers: WARF and Volatility of...
EU CLO Managers: WARF and Volatility of Alpha A sample of 145 EU CLO deals (closed between 2015 and 2018) is...
