CLO secondary trades show appetite for equity tranches
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CLO Research Group's Poh-Heng Tan provides insights on recent CLO equity BWIC activity
Timing is always crucial in trading, and it is no surprise that selling CLO equity tranches in today’s strong market can be rewarding, says Poh-Heng Tan, founder of CLO Research Group.
Recent BWIC colour on CLO equity tranches indicates that many have traded very well. Looking at trades that took place between 27 February and 6 March, IRRs reflect what primary investors would have achieved, assuming a 95 primary issue price.
|
Deal Name |
Deal Closing Date |
Reinvest End Date |
EQ IRR (issue Px 95) |
Annual Dist |
NAV (CVR px) |
BWIC Date |
|
Elmwood CLO 17 |
Jun 22, 2022 |
Jul 17, 2029 |
15.60% |
20.30% |
76.50% |
06-Mar |
|
Dryden 75 CLO |
Feb 27, 2019 |
Apr 15, 2026 |
10.70% |
17.00% |
37.50% |
06-Mar |
|
Kings Park CLO |
Dec 21, 2021 |
Jan 21, 2027 |
6.90% |
19.30% |
51.50% |
06-Mar |
|
Carlyle Euro CLO 2020-2 |
Jan 08, 2021 |
Jan 15, 2025 |
8.90% |
16.90% |
54.70% |
06-Mar |
|
Elmwood CLO VII |
Dec 17, 2020 |
Oct 17, 2029 |
16.20% |
20.90% |
60.80% |
06-Mar |
|
Madison Park Euro Funding XIX |
Jun 29, 2023 |
Jul 15, 2029 |
18.30% |
14.10% |
102.60% |
06-Mar |
|
Generate CLO 3 |
Jun 15, 2016 |
Jan 20, 2029 |
13.40% |
14.80% |
42.80% |
05-Mar |
|
Elmwood CLO I |
Mar 21, 2019 |
Apr 20, 2029 |
18.10% |
18.70% |
62.90% |
05-Mar |
|
Madison Park Funding XLII |
Nov 21, 2017 |
Nov 21, 2022 |
13.60% |
17.40% |
36.70% |
27-Feb |
|
Madison Park Funding XXXII |
Jan 31, 2019 |
Jul 22, 2029 |
11.70% |
16.00% |
51.20% |
27-Feb |
|
Aurium CLO V |
Apr 04, 2019 |
Jul 17, 2025 |
13.30% |
16.20% |
60.80% |
27-Feb |
Source: SCI, CLO Research
Starting with 2016–2017 vintage deals, Generate CLO 3 recorded an IRR of 13.4%, based on a cover price of 42.8%. This is considered one of the top-performing equity tranches from that vintage. Many of its peers, which have been fully liquidated, delivered considerably lower IRRs. Madison Park Funding XLII also performed well, achieving a 13.6% IRR based on a cover price of 36.7%. For these older vintages, an IRR above 12% is generally regarded as strong.
Turning to 2019 vintage deals, Dryden 75 CLO recorded an IRR of 10.7%, while Madison Park Funding XXXII and Aurium CLO achieved IRRs of 11.7% and 13.3%, respectively. For a US CLO from the 2019 vintage, an IRR of 11.7% appears to be in line with the median IRR observed so far.
However, a key consideration is that the number of fully liquidated 2019 vintage deals remains limited. Elmwood CLO I, with an IRR of 18.1%, stands out as particularly strong, especially given that equity IRRs are typically constrained to some extent by incentive fees. For EU CLOs from the 2019 vintage, an IRR of 13.3% is solid when considered in isolation.
Looking at 2021 vintage deals, Kings Park CLO and Carlyle Euro CLO 2020-2 both recorded single-digit IRRs—relatively low for equity tranches on a standalone basis—despite achieving healthy annual distributions of around 17%–19%. This serves as a reminder not to mistake annual distributions for overall equity returns.
2021 vintage deals generally face below-average equity NAVs, particularly in the US market, but their eventual performance remains to be seen.
Some more recently issued equity tranches, such as Elmwood CLO 17, Elmwood CLO VII, and Madison Park Euro Funding XIX, have delivered strong IRRs in the range of 15.6% to 18.3%. Primary investors would be pleased to have invested in these equity tranches.
