Performance and Risk Profile of US BSL CLO Managers
Performance and Risk Profile of US BSL CLO Managers
Performance and Risk Profile of US BSL CLO Managers
It could be assumed that managers with higher Weighted Average Spreads (WAS) are likely to present a higher collateral risk profile and, on average, face greater realised and unrealised principal losses when adjusted for vintage. Conversely, more conservative managers with lower WAS tend to display greater resilience, resulting in lower levels of principal loss, also adjusted for vintage. However, as illustrated in the table below, the median reported WAS metrics across the four quartiles by MVOC are very close, ranging from 3.94% to 3.96%, indicating that reported WAS appears to have limited influence on MVOC performance.
It might be assumed that managers with higher Weighted Average Spreads (WAS) tend to carry a higher collateral risk profile and, on average, experience greater realised and unrealised principal losses when adjusted for vintage. Conversely, more conservative managers with lower WAS often demonstrate greater resilience, leading to lower levels of principal loss, also adjusted for vintage. However, a lower WAS does not always indicate a cleaner US BSL CLO collateral pool.
The underlying modeled collateral spreads are crucial for equity investors, as these modeled spreads are key in determining the issue price of CLO equity tranches. If a deal reports a significantly lower first reported collateral spread, the original attractiveness of the equity investment at a certain price may change as a result.
A sample of 348 seasoned deals (2015–2019 vintage deals) managed by 56 US CLO managers is included in this study. The benchmark loan index used is the Morningstar LSTA US B-BB Ratings Loan Index.
It is encouraging to witness the year-to-date (YTD) upward trend in the floating spreads of collateral for EU CLOs, as observed in a sample of 2021 vintage deals. The inherent long-term, non-recourse funding nature of a CLO structure provides managers with an opportunity to navigate challenging environments and bolster their net interest margins during periods of volatility.
