CLO ratios continue to deteriorate, notes Morgan Stanley

In its latest CDO market update report, Morgan Stanley calculates that the average (median) US CLO is now only 6.3% above its senior overcollateralisation cushion, down from 7.6% last month. European CLOs continue to have higher cushions to their senior OC test but this cushion is declining rapidly, falling from 11.4% a month ago to 9.8%.

By Morgan Stanley’s count, 39 US CLOs and four European CLOs are now failing their senior OC test, which will result in payments being diverted from all but the most senior notes.