CLO Special Topics: OC and amortization considerations for CLO equity, Serta Simmons LME damages

Research evidence excerpt

CLO Special Topics: OC and amortization considerations for CLO equity, Serta Simmons LME damages

Nomura | CLO Special Topics 9 July 2026

OC and amortization considerations for CLO

equity

Prices for longer tenor CLO equity are well below historical averages, driven by recent

NAV declines, and some deals from this cohort could see better returns from sustained

distributions even if NAV weakness persists. Mitigating OC cushion erosion and

extending deals post RP would benefit long-term equity returns, particularly in

deals more levered to the IO, and we detail dispersion in OC cushion trading and

post RP reinvestment across managers.

We detail dispersion across managers for both of these factors. On average, trading

tends to be beneficial for OC cushions in deals with thin OC cushions, mainly from CCC

sales resulting in a lower CCC haircut. Some managers tend to be more aggressive in

defending deals with thin OC cushions, with 2%+ annualized increase in junior OC

cushions from trading. Other managers do not appear to seek increases in OC

cushions from trading, with little change in trading patterns between deals with high or

minimal OC cushions. Similarly, we find significant variation in amortization rates across

managers’ post RP deals, with a four point difference in quarterly manager

amortization rates between 80th and 20th percentiles.

NAVs have declined sharply across equity tenors, resulting in lower clearing prices

Having seen more than three points of market value declines since YE 2024, CLO equity

NAVs have declined significantly across tenors. Long tenor equity from deals issued or

reset since H2 2024 has just a 40% average equity NAV, 30 points lower compared to YE

2024 levels (Fig.8), and around 20% of outstanding deals have 3yrs+ RP remaining and