Standard & Poor’s would like input from loan market participants on a proposed metric that would estimate a CLO’s recovery value.
The CLO Tranche Recovery Metric (CLO TRM) was designed to help make CLOs more transparent for market participants and to improve investors’ analytical capabilities, S&P said.
The CLO TRM estimates potential recoveries on CLO tranches by running a cash flow analysis and incorporating CLO-specific information, such as the composition of the collateral pool, including ratings, loan type, and other features. It also includes certain CLO-specific structural features, such as the triple-C-rated asset rating thresholds used to calculate overcollateralization ratios, event-of-default triggers, and the post-event-of-default payment mechanics. The CLO TRM metric also is designed to allow users to run their own analysis, using their own assumptions, and compare that with other CLOs.
The CLO TRM would report the expected recovery amount as a percentage of the current outstanding balance of the CLO tranche. A percentage less than 100% indicates a less-than-full repayment possibility for that tranche under the scenario the user defines.
S&P asks that market participants send in their feedback to
