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This calculator tests how well a CLO's tranches are protected when its loan collateral comes under stress. Overcollateralization (OC) tests compare the par value of the collateral with the notes it backs: if a class's OC ratio falls below its trigger, cash that would go to junior notes is diverted to pay down senior notes until the ratio is restored.
Enter the collateral pool, how much of it is impaired (CCC excess, defaulted / selective default and discounted loans) and the value given to impaired loans. The calculator applies the resulting haircut, runs every class's OC test before and after it, and highlights the AA tranche (Class B, 1.22x trigger by default).
For every class that fails after the haircut, the time-to-cure analysis estimates the collateral shortfall and how many years the deal's net excess spread (weighted average spread minus expected credit losses) would take to rebuild it. It is a simplified model meant for testing sensitivity to assumptions, not a full deal waterfall.
An OC test checks that a CLO holds enough loan collateral to cover its notes. For each tested class, the OC ratio is the collateral par divided by the balance of that class plus every class senior to it. If the ratio drops below the class's trigger (for example 1.22x for the AA class), cash that would normally go to junior notes and equity is diverted to pay down the senior notes until the ratio is back above the trigger.
Impaired loans don't count at full par in an OC test. The calculator adds up the CCC excess, defaulted / selective default (SD) loans and other discounted collateral, carries that impaired par at the discounted value you enter (60 cents on the dollar by default), and subtracts the difference from the collateral par. The result is the adjusted par used for the post-haircut OC tests.
The AA class (Class B in the default deal, 1.22x trigger) is usually the first OC test to come under pressure in a stress scenario and is closely watched by investors. Its scorecard shows the trigger, the OC ratio before and after the haircut, the cushion or deficit, the dollar shortfall and the time to cure, while the full table covers every class.
For each class failing its post-haircut test, the dollar shortfall is the collateral par needed to bring its OC ratio back to the trigger. The annual cure income is the net excess spread - the weighted average spread minus the net loss rate (gross default rate x (1 - recovery rate)) - times the collateral par. Time to cure is the shortfall divided by that annual income.
The collateral par and how much of it is impaired (CCC excess %, default / SD rate %, additional discount % and the discounted value in cents per dollar), the market assumptions for the cure (weighted average spread, annual gross default rate and recovery rate), and the tranche structure: each class's name, rating, balance and OC trigger. Leave the trigger empty for classes without an OC test, such as the senior AAA notes. Reset defaults loads a standard 6-tranche deal.
No. It is a simplified model meant to test how sensitive OC tests are to collateral stress and spread assumptions. It doesn't model interest coverage tests, reinvestment, trading gains or losses, or the deal's full payment waterfall.
