The single-B tranche is a useful way to increase the leverage of US BSL CLO deals and reduce the amount of equity required, particularly given the constraints on equity capital.
That said, the downside is that it tends to be an expensive means of funding the underlying collateral pool. It also makes resets much harder to execute later on—unless the deal in question has a top-tier, clean collateral pool and benefits from strong market conditions.
Earlier this week saw three distressed trades in the secondary market, all involving single-B tranches. These were not isolated cases; many seasoned single-B bonds are in poor shape. For example, around 34% of single-B tranches from the 2012–2022 vintages had an MVOC below 100% even before the recent volatility triggered by Liberation Day tariffs. As of April 24, 2025, that figure has risen to 40%. Hence, many more distressed bonds are expected to surface in the secondary market in the future.
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.
