MM entities showed resilience after being hit hard by the pandemic. Relative to BSL CLOs, MM CLOs’ liability structures typically close with higher tranche subordination, and the cushions on their junior overcollateralization (OC) ratio tests were no exception.
As of March 2020, across a sample of 71 S&P Global Ratings-rated reinvesting MM CLOs, the average junior OC cushion was 5.2% (as opposed to 3.8% for the CLO Insights 2020 Index of 410 U.S. BSL CLOs). Partially due to the changes in credit estimates discussed above, by September, the average junior OC tests for these MM CLOs have declined to 3.7%, with only a handful of transactions failing their junior tests (as opposed to about 25% of the CLO Insights 2020 Index failing at some point between the second and third quarter).
Additionally, the par balance of MM CLO portfolios reinvesting through COVID have remained relatively stable during this time.
Volta Finance Limited (LON:VTA) is a closed-ended limited liability company registered in Guernsey. Volta’s investment objectives are to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.
