Triple C surge may reverse CLO ratio decline, says Morgan Stanley

In its most recent CDO market update report, Morgan Stanley calculates that the median cushion to the senior overcollateralisation trigger for has fallen from 6.3% to 5.9% in the past month in the case of US CLOs. In the same period, the cushion to senior OC for European CLOs has fallen from 9.8% to 8.5%.

However, the researchers point out that these numbers have a two-to-three month time lag and do not reflect the recent surge in the price of triple C rated loans, which has had a positive impact on OC ratios.

More than 50% of US CLOs and just over 40% of European deals are failing junior OC tests according to the report.