“Better slip with foot than tongue.” – Benjamin Franklin
US CLOs: Annual Distribution vs CLO Equity IRR
A sample of 60 redeemed US CLO equity tranches (2012–2018 vintage deals) is included in this study. These equity tranches registered an annual distribution of 13.3% – 15.8%.
CLO equity IRR (rather than annual distribution) is at the heart of the arbitrage CLO creation equation.
The graph below shows the relationship between annual distribution and equity IRR*.
This graph highlights the fact that CLO equity annual distributions (cash-on-cash returns) are not the same as CLO equity investment returns.
* Issue price of $95 is assumed.
More details can be found in the premium article ‘Understanding The Commonly Used CLO Deal Metrics And Their Limitations’.
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