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CLO equity returns reached the high 20s during the Global Financial Crisis
“And then if you were in contrast, an investor in CLO equity through the financial crisis on a buy and hold basis, a lot of the equity in those deals return high, 20% returns and the debt in the CLOs defaults rarely as well.”
30-year default rate on BB-rated CLO debt tranches is 20 basis points
“If you look back over 30 years, the default rate on CLO double Bs is around 20 basis points.”
BB-rated CLO debt currently yields over 12% with minimal defaults
“Today, because CLO BBs are floating rate, and because the Fed has hiked so much, we're getting yields in the 12% plus area, and defaults have been really, really minimal.”
Only about 6% of CLOs have historically generated a negative IRR
“So by our math, it's about six percent of CLOs that have had negative IRR.”
CLO AUM grew from $6 billion in 1998 to $1 trillion today
“So there was basically about six billion in AUM when I joined. And there was six different CLO managers. And today there's really over a trillion in CLO AUM and about a hundred different active CLO managers.”
The CLO equity tranche represents a $100 billion asset class
“Of a trillion of CLO AUM, the CLO equity tranche is about 10% of the CLO's financing. So it's a hundred billion asset class for CLO equity in particular.”
30-year average annual default rate on CLO loans is about 2%
“You can look back 30 years, and by our estimate, the default rate in CLOs is about two percent.”
CLO managers typically earn 30 to 50 basis points in fees
“They earn, call it, 30 to 50 basis points to put together the initial loan portfolio to keep the CLO fully invested.”