Eigen’s in-depth analysis of over 200 European CLOs has revealed fresh insights into CCC exposure and overcollateralization ratios, raising important questions on the level of risk surrounding CLOs in the context of COVID-19.

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Covid-19 puts increased pressure on the overcollateralization test

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Using Eigen’s natural language processing platform, we extracted data on the CCC limit and the overcollateralization ratio across 212 publicly available EUR CLO offering memorandums. We learned that:

Many managers will seek to mitigate this risk by trading out, however, if this becomes a systemic issue, as we expect to be the case due to the impact of coronavirus, it will become challenging to do so.

These insights come from the first comprehensive, publicly available analysis of CLOs using NLP technology. The full analysis – which is available on request – includes insights into Cov-lite loans and the unsecured limit, in addition to this analysis on the CCC limit and OC ratios. Taken together, these related pieces of analysis offer a comprehensive overview of CLO risk in a COVID-19 environment. We’ve also summarised some of the key findings of the CCC limit and OC ratio content, which you can download below.

~99% of EUR CLOs have a 7.5% limit, but CCC exposure is on the rise in the light of Covid-19.

An average OC ratio decrease of 1.5% over the last 5 years means that older CLOs may be able to absorb ~5% more excess in CCC assets (assuming 70% as market value for CCC excess assets), which is significant in this climate.

With continued uncertainty and a wave of defaults expected, the market value for CCC excess may decrease, putting further pressure on CLOs with lower OC ratios.

ON DEMAND WEBINAR
OVERCOLLATERALIZATION TESTS DURING THE COVID-19 CRISIS:
Will CLO tranches withstand the deterioration of underlying credit quality?

Eigen’s in-depth analysis of over 200 European CLOs has revealed fresh insights into CCC exposure and overcollateralization ratios, raising important questions on the level of risk surrounding CLOs in the context of COVID-19.
 
This webinar explores these CCC limit and overcollateralization ratio trends in greater depth and discusses what they might mean in the context of the global pandemic.  
 
This webinar first took place on Thursday 11 June 2020.

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Eigen’s Co-Founder and CEO, Dr. Lewis Z. Liu, explains why we did this analysis and what we discovered.

Insights from our CCC limit and overcollateralization ratio analysis

While most in the sector are aware of the O/C fail percentage in the Junior tranche, what is the situation for the Mezzanine and Senior tranches? Our analysis will tell you.

Scenario analysis of overcollateralization ratio test failures as a function of CCC concentration in EUR CLOs

Want the full  analysis? 

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If you would like a deeper dive on the full CLO analysis and its implications, we would be happy to set up a dedicated meeting with a member of our senior team.

if you’re in North America 

A member of our team will be in touch to set up your appointment. 

NEW ANALYSIS

Overcollateralization ratio and CCC limit trends in European CLOs

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