What is MVOC?
Market Value Over-Collateralisation (MVOC), such as at the CLO BB tranche level, is calculated by dividing the market value of the collateral by the total CLO liabilities from AAA to BB. In essence, it is a market value-to-debt metric — conceptually similar to a ‘VTL’ (Value-to-Liabilities) ratio, as opposed to the more familiar ‘LTV’ (Loan-to-Value) used in the mortgage market. One might even think of it as a reverse LTV.
Why it matters?
Primary and secondary market participants place considerable emphasis on this point-in-time metric, as it plays a key role in pricing CLO-rated tranches. Put simply, CLO debt tranche pricing tends to move in line with the underlying loan market — and MVOC provides a quick gauge of how well the collateral’s market value covers the rated liabilities.
That said, AAA and AA CLO investors may not focus on this metric as closely as mezzanine tranche investors, since a difference between 135% and 137% MVOC is unlikely to have a meaningful impact at the top of the capital structure. Nevertheless, understanding how a deal is performing across the stack remains important, given its significant implications for reset optionality — which can be particularly valuable in volatile market conditions.
Typically, well-performing deals are able to reset when the economics are favourable, even in a relatively weaker market environment. In such cases, senior tranche investors may have the opportunity to roll into a longer-duration bond at wider spreads, while mezzanine tranche investors could benefit from their positions being pulled to par.
If a deal is underperforming and market conditions are volatile, its life is likely to be extended — an outcome that is generally unfavourable for senior CLO tranche investors.
Related articles:
Assessing US BSL CLO Manager MVOC Performance: 2021–2024 Deals
Assessing EU CLO Manager MVOC Performance: 2021–2024 Deals
US CLO Managers and Their CLO AUM Breakdown by Reinvestment Period (Updated)
BWIC Colour: US CLO BBs and Distressed Single-B Bonds
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.
