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Essential Intelligence: Analytics

CLO Tranche Recovery Metrics

CLO Tranche Recovery Metrics (CLO TRM)

CLO TRM reflects a cash-flow-based recovery analysis for individual CLO tranches.

S&P Global Ratings collateralized loan obligation tranche recovery metrics (CLO TRM), which we express as a percent of the current balance of the security, reflects a cash-flow-based recovery analysis for individual CLO tranches given a set of hypothetical economic scenarios and certain collateral default and recovery assumptions. Based on our framework for estimating recoveries on CLO tranches, we provide these values for the relevant transactions in our U.S. Corporate CDO EOD Index.

Offering added depth and color to S&P Global Ratings' U.S. CLO Credit Ratings:
CLO TRM is not a rating. Rather, this metric was designed to offer supplementary analytics to market participants who seek additional analytic capabilities and greater transparency in the CLO sector.

Detailed Description
S&P Global Ratings provides the expected recovery amount as a percent of the current outstanding balance of each CLO tranche. A TRM of less than 100% indicates its view that the tranche might not receive full repayment under a given scenario.

Our CLO TRM methodology provides a cash flow framework and the ability to estimate a recovery percentage that reflects:
  • The rating composition of the underlying portfolio;
  • Certain structural and payment mechanics (such as de-leveraging triggers, including 'CCC' rating haircuts, which are relevant for calculating overcollateralization); and
  • Other transaction-specific features (such as post-EOD cash flow mechanics).

Using the CLO TRM framework, we can examine a hypothetical collateral environment using assumptions regarding:
  • The potential credit migration (and default) of assets in the portfolio; and
  • The asset recovery potential for defaulted and 'CCC' rated assets.

In this way, the framework allows us to estimate the recovery prospects for a CLO tranche under various hypothetical collateral scenarios (regarding rating transitions, defaults, and recoveries) for the relevant collateral pool.

CLO TRM values are published quarterly in a report found on Global Credit Portal.

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