US CLO metrics continue to improve, says Wells Fargo

In its last CDO Market Update report, Wells Fargo points out that the number of US CLOs failing their senior overcollateralisation tests has halved since the peak in June. As of 19 November, 28 deals were failing all their OC tests compared to 56 in June, writes senior analyst Dave Preston. That is equivalent to a fall from 11.1% of all US CLOs to 5.5%.

Over the same time period, the proportion of deals failing their junior par value tests has fallen from 57.1% to 42.9%, representing a decline from 287 deals to 219.

The improvement in par values comes despite continued defaults and downgrades, and largely reflects the recent improvement in the price of the most distressed loans. But, as the report points out, the pace of both defaults and downgrades has slowed.