US CLO Equity: Loan Repricing Risk
- An overheated loan market with lots of loans quoted above par would usually lead to a higher volume of loan repricing activities and a tighter net interest margin as a result if repricings of CLO tranches could not catch up.
| Jan – May 2021 | 2016 | 2017 | 2018 | 2019 | 2020 |
| Deal count | 109 | 162 | 264 | 208 | 174 |
| Average underlying collateral spread change (bp) | -7 | -8 | -6 | -6 | -4 |
| Percentile | |||||
| 50% | -7 | -8 | -6 | -6 | -5 |
| 25% | – 12 | -11 | -10 | -9 | -10 |
| 10% | -17 | -17 | -15 | -14 | -13 |
| Wt’ average curr tranche spread change (bp) | -1 | -7 | -1 | -8 | -4 |
| Wt’ average curr tranche spread (bp) | 168 | 168 | 164 | 192 | 202 |
| > par price | 25% | 24% | 25% | 28% | 33% |
Source: Intex, LPC, CLO Research
- The above table shows the underlying CLO collateral spread tightening across 2016 – 2020 vintages between Jan and May 2021.
- Ignoring refinancing or reset costs, the tighter repricing of CLO liabilities (of 2017, 2019 – 2020 deals) that took place during the same period seemed to have matched the spread tightening of the underlying collateral pools on average.
- 2019–2020 deals with wide liabilities that have yet to refinance or reset should help cushion ongoing loan repricing risks
- Over a roughly 4-month period, 10% of deals in each vintage experienced a 13 – 17bp decline or worse in collateral spreads, while the average decline was more like 5 – 8 bp across the board.
* BSL CLO deals with less than 85% pool factor are excluded
Disclaimers
The information, research, data, research related opinions, observations and estimates contained in this document have been compiled or arrived at by CLO Research Group, based upon sources believed to be reliable and accurate, and in good faith, but in each case without further investigation. None of CLO Research Group or its service providers; authorised personnel, or their directors make any expressed or implied presentation or warranty, nor do any of such persons accept any responsibility or liability as to the accuracy, timeliness, completeness or correctness of such sources and the information, research, data, research related opinions, observations and estimates contained in this document. All information, research, data, research related opinions, observations, and estimates in this document are in draft form as of the date of this document and remain subject to change and amendment without notice. Neither CLO Research Group nor any of their third-party providers shall be subject to any damages or liability for any errors, omissions, incompleteness or incorrectness of this document. This article is not and should not be construed as an offer, or a solicitation of an offer, to buy or sell securities and shall not be relied upon as a promise or representation regarding the historical or current position or performance of any of the deals or issues mentioned in it.
