KBRA Releases Research – Navigating U.S. CLO Tail Risk
2024年7月30日 - 12:30AM
ビジネスワイヤ(英語)
KBRA releases a report exploring the increasing number of
amortizing U.S. collateralized loan obligation (CLO) transactions
that have reached the end of their reinvestment period and are not
expected to be refinanced in the near term due to the prevailing
rate environment as well as other considerations. As such, they
have begun to amortize and return principal to noteholders. The
rate of paydown can be influenced by a number of factors that can
cause variability in the outstanding life across transactions—or
even against expectations at the time of transaction closing. In
this report, we explore the amortization profiles of U.S. CLOs.
Key Takeaways
- Market amortization rates at the end of a reinvestment period
vary greatly across managers. As of the sixth period after ending
reinvestment, senior tranche amortization can range from 4.5% to
80% by manager.
- Vintage matters, as transaction seasoning influences the
amortization profile. This is because collateral, documentation,
and reinvestment provisions tend to have similarities among the
same vintage cohort. Currently amortizing transactions from 2015
are paying down at the fastest rate to a weighted average (WA)
AAA-rated tranche factor of 0.19 after seven periods. Conversely,
those from 2021 are returning principal at the slowest rate,
reaching a WA factor of 0.72 after seven periods.
- The end of reinvestment periods does not mean the end of
reinvestments. Certain documentation provisions allow managers to
continue making collateral purchases according to specific criteria
and circumstances. The fastest amortizing managers tend to execute
fewer purchases, on average, during the amortization period.
- Transaction extension exposes the structure to the risk of
deteriorating credit quality, as well as defaults that may be
associated with adverse selection. Restrictions placed on managers
in the post-reinvestment period are designed to mitigate this risk.
Such restrictions will be put to the test, given the volume of
transactions that have entered, or will enter, amortization
periods.
Click here to view the report.
Related Publications
- Private Credit: Business Development Company (BDC) Ratings
Compendium: First-Quarter 2024
- European CLOs: Too Big to Hold?
- Recurring Revenue Loan Metrics Dashboard: May 2024 Update
- LSTA and DealCatalyst Annual CLO Conference Recap
- European CLO Manager Style Comparisons: April 2024 Update
- Structured Credit Trend Watch: CLO Issuance in
Bloom—First-Quarter Record for Middle Market
- Navigating European CLO Tail Risk: Mind the Amortisation
Gap
- Private Credit: Potential for European MM and Direct Lending
CLOs
About KBRA
KBRA is a full-service credit rating agency registered in the
U.S., the EU, and the UK, and is designated to provide structured
finance ratings in Canada. KBRA’s ratings can be used by investors
for regulatory capital purposes in multiple jurisdictions.
Doc ID: 1005272
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Akiko Kato, Director +1 646-731-1341 akiko.kato@kbra.com
HyunKyeong Kim, Associate +1 646-731-2459
hyunkyeong.kim@kbra.com
Sean Malone, Managing Director, Co-Head of Global Structured
Credit +1 646-731-2436 sean.malone@kbra.com
Eric Hudson, Senior Managing Director, Co-Head of Global
Structured Credit +1 646-731-3320 eric.hudson@kbra.com
Gabriele Gramazio, Senior Director +44 20 8148 1001
gabriele.gramazio@kbra.com
Gordon Kerr, Managing Director, Head of European Research +44 20
8148 1020 gordon.kerr@kbra.com
Yee Cent Wong, Co-Head of Europe +353 1 588 1260
yee.cent.wong@kbra.com
Media Contact
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adam.tempkin@kbra.com
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