Print and sprints from 2022 generate near record returns

Hugh Minch

Deputy editor

A select group of print and sprint CLOs that priced in the summer of 2022 are generating near-record IRRs on the back of the rally in the loan market over the past 12 months. The CLOs in question were structured with one-year non-call periods and were liquidated in August.

According to market sources, Voya CLO 2022-2 priced on 12 July last year with 11.74 turns of leverage. Voya Alternative Asset Management acquired its portfolio at a weighted average purchase price of $94.31. The CLO was called in August and is estimated to have generated a gross IRR without the incentive fee of 63.75% for equity investor Bain Capital Credit, or a net IRR with incentive fee of 61.47%.

RR 22, a 9.04 times levered CLO managed by Redding Ridge Asset Management, was also called in August, with its assets rolled into its sister transaction RR 23, which was upsized and reset. RR 22’s portfolio was acquired at a dollar price of $94.94 and generated a gross IRR of around 71% and a net IRR of around 42% for Redding Ridge, which holds its own CLO equity.

Both Voya 2022-2 and RR 22 priced at a time when loans were at their cheapest post covid, yet redeemed when over 50% of the index was trading above $99.

* Estimated net IRR

Spokespeople for Voya, Redding Ridge and Bain declined to comment. However, a source close to one of the deals told Creditflux that managers able to ramp a deal quickly can take advantage of dislocations in volatile markets.

“A time came last year where liabilities widened out and people were asking how could you make the arbitrage work when triple As are in the low 200s? But if you’re buying the portfolio in the low 90s, the cashflow profile isn’t any worse, especially if the assets are managed well.”

Managers structuring print and sprint transactions highlight the importance of working with a triple A investor that understands the importance of moving quickly when markets are volatile, rather than investors that require the standard four-week period between pricing and closing a deal.

“Things could have been different and there could have been a longer recession,” says the source. “The deal priced near the bottom and then the market ripped higher. The window is narrow and you have to be fast.”

This summer has seen an increase in the volume of CLOs being called rather than reset and extended, a trend which market participants expect to continue for the remainder of the year. Net growth in the CLO market is under 5% in 2023.

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Global credit funds & CLO's

September 2023 | Issue 257

Published in London & New York.