CLO Call Risk Monitor

Research evidence excerpt

CLO Call Risk Monitor

J P M O R G A N Global Securitized Products

Research

07 July 2026

July 2026

North America Credit Collateralized

Loan Obligations

Rishad Ahluwalia AC

(44-20) 7134-0254

rishad.ahluwalia@jpmorgan.com

J.P. Morgan Securities plc

• In our monthly Call Risk Monitor, we estimate the value of the embedded Aram Lavan

option in newly-issued 5nc2 BSL CLOs using a simulation-based option

(1-212) 622-5385

pricing methodology. Please refer to Option Pricing Methodology in the aram.lavan@jpmchase.com

appendix for more details on the framework. J.P. Morgan Securities LLC

• The option currently has a value of 6.1bp worth of spread-reduction, making

the option-adjusted spread (OAS) 113.9bp. This is calculated by subtracting

the expected reduction from the current spread of 120bp (Figure 1NewIsueHistoricalAT1OASover10years, Figure 2NewIsueHistoricalAT1OASover3years).

Given the long time horizon of CLO options and the mean-reverting nature of

spreads, the OAS tends to remain fairly stable, especially when spreads are

above the long-term mean. This is because many CLOs issued above the mean

will be able to be called after the spread has reverted.

• We look at the percentile ranking1 of the current embedded option value in

newly issued CLOs to categorize the risk that these will be called once they exit

their non-call period. The embedded option in newly issued 5n2 CLO AAAs

currently stands at 6.1bp (29%-tile). This means that the call risk associated

with these CLOs is categorized as Medium (>25%-tile and <75%-tile) (Figure

6CalRiskin5nc2NewlyIsuedCLOAs). Separately, we can measure the percentile ranking of the change in spreads

over the past two years to categorize the risk that existing CLOs leaving their

non-call period will be called.