WAL Test Step Up Conditions in European CLO Transactions

Highlights

In this report we look at the state of Weighted Average Life (WAL) Test Step Up Conditions in European CLO transactions from Q1 2023 to Q4 2024. The report covers a total of 253 European transactions.

We highlight variations of WAL Test Step Up Conditions in transactions which allow managers to lengthen the WAL Test limit by usually one year, bypassing the modification and waiver provisions, which usually require at least consent of the controlling class. It is of importance for the noteholders as the expected maturity of the notes will also be lengthened.

Key Documentation Consideration:

• 136 transactions used a standard Weighted Average Life Test whilst 117 transactions included a WAL Test Step Up Condition.
• Most transactions that included a WAL Test Step Up Condition require compliance with quality tests whilst some transactions only require Fitch Rating agency approval without satisfaction of all quality tests.
• 60 transactions that have a WAL Test Step Up Condition require each of the Portfolio Profile Tests, Collateral Quality Tests and Coverage Tests to be satisfied amongst other tests.
• 22 transactions that have a WAL Test Step Up Condition carve-out quality tests such as Portfolio Profile Tests, Collateral Quality Tests or Coverage Tests or contains some of these key tests, but not all are required to be satisfied.
• 35 transactions only require Fitch Rating agency approval for satisfaction of the WAL Test Step Up Condition (based on Fitch Matrix) without a requirement to satisfy quality tests such as each of the Portfolio Profile Tests, Collateral Quality Tests and Coverage Tests.