Poh-Heng Tan from CLO Research provides insights on a recent CLO equity list

Based on SCI BWIC data, between 17 July 2024 and 8 March 2025, approximately 66 US CLO equity tranches from the 2021 vintage appeared on BWIC lists, where list owners provided colour on the equity tranches. Based on this colour, US CLO equity tranches from the 2021 vintage recorded a median IRR of 7.8%, with the 75th percentile at 12.3% and the 25th percentile at 3.0%.

The table below presents selected CLO equity trades from 11 March 2025, with IRRs reflecting the IRRs primary investors would have achieved, assuming a US$95 primary issue price.

Source: SCI, CLO Research, Intex

Two equity tranches from the 2021 vintage traded with disclosed covers. Based on these covers, the IRRs ranged from 4.5% to 6.3%, indicating that primary investors would have achieved IRRs in the 25th to 50th percentile range.

On the other hand, Barings CLO 2022-IV delivered an impressive 19.0% IRR, benefiting from well-timed execution. This deal, managed by Barings, was priced on 4 October 2022, when the Morningstar LSTA US B/BB Ratings Loan Index was at an attractive level of 93.3. This enabled the deal to acquire assets at a meaningful discount and build substantial par.

Its strong annual distribution was largely driven by an initial payout of 12.3% and a significant distribution of 23.8% upon reset in October 2024. The equity tranche also traded on 29 October at a cover price of US$85.5, following the large 23.8% distribution. At this cover price, primary investors would have achieved a much higher IRR of 25.8%. This also underscores how waves of underlying loan repricing can pose challenges for long-dated CLO equity.

Turning to another late 2020-vintage deal, KKR CLO 32, managed by KKR, the underlying asset prices had already rallied significantly since hitting a low in June 2020. Given where this deal acquired its assets, it closely resembles a regular arbitrage deal in a more normalised market.

Its IRR of 11.5%, based on a cover price of US$56.8, is broadly in line with the target 12% IRR set by its incentive fee IRR threshold. That said, based on cover prices for this equity tranche on 20 November 2024 and 7 March 2024, IRRs would have been 12.9%, suggesting that primary investors would have been slightly better off selling in either November 2024 or March 2024.

However, if we consider the cover price on 5 April 2023 - when the loan market was still weak and the CLO reset market remained closed - primary investors would have been significantly worse off, with an IRR of just 1.3%.