How worried should we be about defaults?
As defaults in the US loan market continue to stack up, we investigate the fallout for CLO investors by focusing on the OC tests of double B tranches across 10 years of US CLO vintages

European CLOs win out against US deals
Last month, our analysis explored the performance of US CLOs that were previously reset. We found that they delivered higher distributions than deals which weren’t reset, with the exception of the 2017 and 2018 vintages (Creditflux September 2023 — Do resets help CLOs perform better?). This article expands that analysis to the European market, and compares the performance of US BSL and EU CLO equity tranches.

Do resets help CLOs perform better?
As the market for CLO resets opens, we look at the performance of deals that were previously reset, and find they soon deliver higher distributions than those deals that were not reset

Question your assumptions
Valuing CLO paper is complicated, and loan prepayments are one of the trickiest parts. When pricing a new issue CLO, the market generally assumes that 15-20% of loans will prepay their principal annually. This prepayment rate is important because it essentially determines the pace at which a CLO’s rated debt is paid off after the reinvestment period, when the CLO pays down its own principal.

Are we ready for another crisis?
Credit managers must brace themselves for stress in 2023, as rates rise and the number of poor performing assets increases. But most CLOs look well-placed and can rely on plump OC cushions 

Not every CLO can be a winner
The CLO industry has undeniably performed well enough to justify the plaudits it receives. But there will always be some unloved CLO tranches that slip into triple C territory

New kids on the block dominate awards

Updated, upgraded and ready to launch
Whether it’s a software update or a full-blown upgrade to a newer model, CLO technology is advancing fast, with Be-Spoke and Ellington the latest to launch new types of securitisations

Still weighed down by 2015 oil price slump
It’s three years since the depths of the oil crisis but offshore service companies — such as the helicopter businesses that transport workers to oil rigs — are not seeing lift-off in prices or profits

Evolving strategy takes Norinchukin close to top spot in CLO investment
Over the years, Nochu has tweaked its cov-lite stipulations, and added mid market and European CLO exposure to its CLO investments. It’s now nearly the market’s biggest investor  

There are no perfect hedges for CLOs
As the CLO market gets hotter and hotter, investors are seeking hedges against the inevitable downturn. But although there are a wide range of options, there is no consensus on which is best
 

Tastes change in secondary trading
Our analysis of the secondary market shows that, since 2013, appetite for CLOs run by tier one managers persists through market dips and rallies.

Which flavour do you favour?
We asked four direct lenders for their opinions on four fictional European borrowers operating in software, food, consumer loans and retail – and found they had similar tastes.

Managers predict skill will win out
We asked managers to predict the year ahead across a range of credit strategies. Overall, they had a positive outlook. By Grace Jennings-Edquist

Managers pick spots on CLO curve
As refi volumes slowed through 2017, the term curve for CLOs steepened, leading managers to vary their deal tenors as they sought to hit the evolving sweet spot.

Payday: Investors go for broke on regulatory bet
New regulations could seriously hamper US payday lenders – but bond holders are betting the rules won’t be enacted

Computer hardware: manufacturers search for reboot button
Hardware firms are struggling for growth. It’s a problem that turning off and on again won’t fix. By Euan Hagger

Chance encounter sets up CIFC sale
Selling a business can be arduous, frustrating and nerve-wracking. An exhaustive process does help – but sometimes it takes a bit of luck for a deal to go through

Transport and logistics: heavy debt leaves transporters in jam
With logistic specialists getting a rough ride, debt restructuring could be the next stop for asset-light companies

CLO boom encourages new ideas
Volumes are up, spreads are down and risk retention is a doddle. That must mean it’s time to push the boat out and innovate

Things aren’t always what they seem
Buy CLO triple As but don’t be fooled by diversity scores; take a look at credit index futures if you need liquidity; and watch out for quasi-mid market loans appearing in CLOs

Investing ethically is worth it
Managers could see less volatile returns as a result of their increasing adoption of ESG-friendly portfolios; meanwhile direct lending is spreading across Europe

Heavy equipment suppliers: slowly crawling out of the mud
There are tentative signs that heavy equipment manufacturers are finally pulling themselves out of the mire

Rebooting the CLO market
Switching off and on again proved a popular tactic for CLO managers last year as refis and resets helped push issuance to $132 billion