Set In Georgia 50pt WFC CLO Style Guide

User Manual: Pdf

Open the PDF directly: View PDF .
Page Count: 34

Download
Open PDF In Browser	View PDF

The Guide to the CLO Style Guide
David Preston, CFA
CLO and Commercial ABS Research
(704) 410-3080
david.preston@wellsfargo.com

Geoff Horton, CFA

CLO and Commercial ABS Research
(704) 410-3352
geoffrey.horton@wellsfargo.com

Mackenzie Miller
CLO and Commercial ABS Research
(704) 410-3358
mackenzie.miller@wellsfargo.com

October 10, 2017
Please see page 32 for the rating definitions, important disclosures and
required analyst certifications. 10/10/17 at 3:00 p.m. ET
This report is available on wellsfargoresearch.com and on Bloomberg WFRE
All estimates/forecasts are as of 10/10/17 unless otherwise stated.

Contents
Introduction
Overview / C aveats
Metric Summary Table
WAS
Summary
History / C ommon Metric
WARF
Summary
History / C ommon Metric
Adj. NAV
Summary
History / C ommon Metric
Diversity Score
Summary
History / C ommon Metric
Normalized Eq. Pmt
Summary
History / C ommon Metric
Leverage
Summary
History / C ommon Metric

Min. OC Cushion
Summary
History / C ommon
Caa/CCC
Summary
History / C ommon
2nd Lien Exposure
Summary
History / C ommon
< 80 Exposure
Summary
History / C ommon
Wt. Avg Bid Depth
Summary
History / C ommon
MV NAV
Summary
History / C ommon
BB MVOC
Summary
History / C ommon

3
5
Pairings

6
7

Pairings

8
9

Pairings

10
11

Pairings

12
13

Pairings

14
15

Pairings

16
17

Metric Pairings

18
19

Metric Pairings

20
21

Metric Pairings

22
23

Metric Pairings

24
25

Metric Pairings

26
27

Metric Pairings

28
29

Metric Pairings

30
31

CLO Style Guide Data: Overview and Caveats

 We present The Guide to the CLO Style Guide, a companion to our monthly CLO
Manager Style Guide.
 We believe that evaluating manager performance should always be viewed within the
appropriate context. This report intends to give investors the tools needed to evaluate
the CLOs in their respective portfolios.
 We provide descriptions and strengths/weaknesses for 14 different metrics. Investors
may prioritize certain performance metrics; using these metrics, investors can
evaluate holdings using market and manager data for a specific metric.

 The data are only a snapshot (based on each deal’s most recent Intex update), yet
investors can also use the data to infer prior tactical or strategic maneuvers.

 Investors can compare relative position within various metrics. We urge investors not
to focus on the specific number; differences can be small.

CLO Style Guide Data: Overview and Caveats

 In addition to the individual strengths and weaknesses listed, we also note that ALL the
metrics listed are subject to the following drawbacks:

 All the data are a snapshot - as of the latest Intex update within the three months prior to the

Style Guide (with the exception of price data, leverage and equity payment data), and does not
account for the starting point or the path taken to the current point.
 Therefore, the managers’ style may have changed over time. A manager could have had a highspread portfolio in 2014 but have since rotated to lower-spread assets.
 Deals with lower OC cushions may have been issued with tighter cushion.
 Similarly, loans <80 do not account for purchase price. A manager may have purchased loans
at 50 versus purchasing the loans at new issue.
 All the metrics are averages, and may mask distortions, such as barbelling.

 All the data are subject to vintage biases – for example, 2016 deals have a very different profile

than 2013 or 2014 deals. Therefore, if a manager’s outstanding deals are overweight one vintage,
their data may be skewed.

 We believe that even given these drawbacks, the metrics, when combined, can provide a
directional look at manager style / performance.

CLO Metric Summary
Description

Curr. Mkt Avg.

The calculated Wt. Avg Spread of the portfolio – giving
no credit for LIBOR or for LIBOR floors

357

Straightforward - loan market's perception of
risk expressed as average coupon

Does not account for liquidity

WARF

Measures the weighted average Moody's rating of
the assets.
Lower WARF = Higher average credit rating
Higher WARF = Lower average credit rating

2802

C ommonly used, expresses average rating of
portfolio

Assumes ratings are a good proxy for risk
May not be calculated the same way across all deals

Adj. NAV

Adj. NAV is the equity NAV of the C LO, but not carrying
all loans at their current market value.

C ompensates for weaknesses of liquidation NAV
and par based NAV

Less intiutive;

WAS

Metric

67.1%

Strength

C alculated using loans trading at 85+ carried at par; 75 85 = 80; and < 75 = 65.

May not match C LO reported WAS

Does not adequately punish very low priced loans (< 50)
NAV is affected by vintage and how notes/equity are sold at new issue

Div.

Moody’s diversity score: based on how many assets,
how many industries and how big the positions are. A
par weighted calculation that indicates collateral
concentration in terms of both issuer and industry
concentration.

Norm. Eq. Pmt

The total sum of all equity payments made during
reinvestment, converted to an average quarterly
payment. Equity distribution is the quarterly equity
payment divided by the equity notional value.

4.3%

Leverage provided by C LO structure; Total initial deal
balance / equity notional balance.

10.8

Min. OC

Difference between actual OC level and OC Test limit
for the tightest OC test in the deal (not including Int.
Diversion tests – only true OC tests)

419

Caa/CCC

Intex’s fields show % of the portfolio rated Caa or
below, and the % of the portfolio rated CCC or below

2nd Lien

The percent of 2nd lien loans held by the C LO

<80

Average # of loans in the pool that have current
market prices below 80

Lev.

Weakness

C ommonly used measure of portfolio
concentration

Diversity score may not be correlated with credit quality
Industry classifications may not be standardized

Looks at avg equity pmt over time

Does not account for debt cost or vintage differences

Adjusts for the fact that the first equity pmts
often differ in payment period length, and
differing first pmt periods can produce high or
low first pmts

Not adjusted for refi/ reset, which can affect equity NAV & payments

Easy to calculate in Intex

Based on structural leverage, not actual asset leverage, which
technically would be more accurate

Uses equity notional balance - similar to equity
pmt data

4.3% / 3.8%

Intuitive & commonly used
Lower OC cushion are typically indicative of
losses or stressed assets

Does not account for initial structuring or OC calculation differences
Only a snapshot; does not show OC gained or lost

Intuitive & commonly used
Quick measure of lower rated assets

May be calculated differently from deal to deal Also, the data reported
in Intex may refer to concentration limits, not to Excess C aa or Excess
C C C Test levels used for OC test calculation
May not include data from deals not rated by that rating agy

1.77

The percent of 2nd lien loans held by the C LO

Not much differentiation; may not serve as a stand alone proxy for risk

2.4%

C urrent data on loan market's view of more
likely default candidates
C ommonly used metric for tail risk in C LO
portfolios

Does not account for purchase price

Proxy for liqudity of underlying loans - which
can be used as a proxy for holdings of smaller
or "lightly syndicated" loans

Does not account for quality/size of bids in the market

C ommonly used metric for equity valuation

C LO is not a mark to market vehicle; liklely is only an estimate of true
liquidation value due to transaction costs and management fees senior
to equity.

Bid Depth

Weighted average of the # of bids on the loans in the
C LO portfolio.

4.9

NAV

Equity Net Asset Value; the current liquidation valueo
of the portfolio, less outstanding note balance.

58.0%

At times, $80 may be not be the right cut-off price

NAV is affected by vintage and how notes/equity are sold at new issue

BB MVOC

The Market Value OC Ratio of the BB notes (Portfolio
liquidation value coverage of BB notes)

107.0

C ommonly used metric

C LO is not a mark to market vehicle

CLO Metrics: Weighted Average Spread (WAS)
Metric

Weighted Average Spread (WAS)
The calculated Wt. Avg Spread of the portfolio – giving no credit for LIBOR or for LIBOR floors
i.e. if all the loans are L+350, the metric would be 350 bps

Description/ Uses

Can infer risk appetite / risk profile of the loan pool.
All else equal, a lower spread manager should have less risky assets. if a manager has low spread – and low equity
distributions – investors may expect a higher NAV, since they are taking less risk in the portfolio.
Time

Market Stats

Median Level

Current (Sep 2017)
12M Ago (Sep 2016)
18M Ago (Mar 2016)

357
384
381

Chg. From Current
-27
-24

Higher Spread Pool
Common Metric
Pairs/Tradeoffs

Lower Spread Pool

Higher equity payments
More risky assets - higher WARF/ Caa/ CCC/ 2nd Lien
Lower market-value metrics - NAV, Adj. NAV, BB MVOC

Strengths

Metric Analysis

Calculation Example

Holding ($mm)
5
2.5
2.5

Weighted Avg. Spread
Data Source

Weaknesses

● Easy to calculate/provided in Intex
● Straightforward - loan market's perception of risk
expressed as average coupon
● Strong relationship with Equity Payments

Asset
Loan 1
Loan 2
Loan 3

Lower equity payments
Less risky assets - lower WARF/ Caa/ CCC/ 2nd Lien
Higher market-value metrics - NAV, Adj. NAV, BB MVOC

3mL + Spread
3mL + 300
3mL + 350
3mL + 425
3mL + 344

Intex

● Subject to vintage bias - spread levels are dependent on
loans available in the market
● Managers that have a larger share of deals issued in
2016/2017 may have lower WAS levels than managers with
a larger share of 2013/2014 deals
● May not account for liquidity / size of underlying loans

CLO Metrics: Weighted Average Spread (WAS)
4.30

The Median WAS has dropped
over the past 18 Months

Median WAS by Vintage

4.10

3.90

3.70

5%
4%
3%
2%

3.50
Jan-13

Jan-14

2012

Jan-15
2014

2013

Jan-16

Jan-17

1%
320

3.50

340

360

2016

2015

380

400

420

WAS

Higher WAS Often Associated with
Higher WARF (Lower-Rated Assets)

3,200

100%

NAV and Adj. NAV

3,100
3,000

WARF

Higher WAS Often Associated with
Higher Equity Pmts.

Norm. Equity Pmt.

4.30

2,900
2,800
2,700

Higher WAS Often Associated with
Lower Market Value Metrics

80%
60%
40%
20%

2,600
2,500

320

340

360

380
WAS

400

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

0%
320

420

340

360
MV NAV

WAS

380
Adj. NAV

400

420

CLO Metrics: Weighted Average Rating Factor (WARF)
Metric

Description/ Uses

Weighted Average Rating Factor (WARF)
Measures the weighted average Moody's rating of the assets. Used to determine the risk in the pool.
Lower WARF = Higher average credit rating
Higher WARF = Lower average credit rating
Some investors may view WARF as a "filter" metric; for example, an investor prefers deals with WARF below a certain level.
For reference, a CLO with a WARF of 2,833 is roughly equivalent to a B2 rating.

Market Stats

Median Level
Time
Current (Sep 2017)
2802
12M Ago (Sep 2016)
2861
18M Ago (Mar 2016)
2801

Chg. From Current
-59
1

Higher WARF Pool
Common Metric
Pairs/Tradeoffs

Lower WARF Pool

Higher WAS and potentially higher equity payments
Lower rated assets - more exposure to Caa/ CCC/ 2nd Lien
Lower market-value metrics - NAV, Adj. NAV, BB MVOC

Lower WAS and potentially lower equity payments
Higher rated assets - Less exposure to Caa/ CCC/ 2nd Lien
Higher market-value metrics - NAV, Adj. NAV, BB MVOC

Strengths
Metric Analysis

Calculation Notes

Weaknesses

● Easy to calculate/provided in Intex

● Assumes ratings are a good proxy for risk
● May not be calculated the same way across all deals

Each obligor is assigned a Rating Factor based on Moody's
Default Probability Rating; this represents the idealized default
rate at a 10-year time horizon, multiplied by 10,000. For
example: an Obligor with a rating of Baa3 may have a Rating
Factor of 610, or a 610/10,000 (6.1%) probability that it will
default within a 10-year time horizon.
**Many CLOs use the Moody's Corporate Family Rating (CFR)
when calculating WARF. CFRs may be 1-2 notches lower than the
rating on a 1st lien sr secured loan. Also, the Moody’s rating for
WARF may be adjusted if the loan is on watch or outlook.

Data Source

Intex

Moody's
Rating
Aaa

Equiv.
S&P
AAA

Rating
Factor
1

Moody's Equiv. Rating
Rating
S&P
Factor
Ba1
BB+
940

Aa1
Aa2

AA+
AA

10
20

Ba2
Ba3

BB
BB-

1,350
1,766

Aa3

AA-

B+

2,220

A+

2,720

120

B-

3,490

A3
Baa1
Baa2

ABBB+
BBB

180
260
360

C aa1
C aa2
C aa3

CCC+
CCC
CCC-

4,770
6,500
8,070

Baa3

BBB-

610

10,000

CLO Metrics: Weighted Average Rating Factor (WARF)
The Median WARF has Increased Since 2013

3,000

2,900

420

380

2,800

2,700

2,600

340

2,500

320
2,500

Jan-14

2012

2013

Jan-15
2014

Jan-16

Jan-17

360

Lower WARF Often Associated with
Lower Exposure to Loans < $80

12%

Caa and CCC %

10%

4%
3%
2%
1%
2,600

2,700

2,800
2,900
WARF

3,000

2,600

2,700

3,100

3,200

2,800
2,900
3,000
3,100
WARF
% Caa Exposure
% CCC Exposure

3,200

2016

2015

0%
2,500

Higher WARF Often Associated with
Higher WAS (Higher-Spread Pools)

400

2,800

2,500
Jan-13

% < $80

3,100

WAS

Median WARF by Vintage

3,100

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

3,000

Lower WARF Often Associated with
Lower Caa or CCC Exposure

6%
4%
2%
0%
2,500

3,200

2,800
2,900
WARF

2,600

2,700

CLO Metrics: Adjusted Net Asset Value (Adj. NAV)
Metric
Description/ Uses

Adjusted Net Asset Value (Adj. NAV)
Adjusted NAV is an attempt to compensate for the weaknesses of both pure market value NAV and a par-based measurement.
Adj. NAV is the equity NAV of the CLO, but not carrying all loans at their current market value.
Calculated using loans trading at 85+ carried at par; 75 - 85 carried at 80; and < 75 carried at 65 (low end of hist. recovery).
Time

Market Stats

Median Level

Current (Sep 2017)
12M Ago (Sep 2016)
18M Ago (Mar 2016)

Chg. From Current

67.1%
53.9%
41.1%

13.2%
26.0%

Higher Adj. NAV Pool
Common Metric
Pairs/Tradeoffs

Lower Adj. NAV Pool

Lower risky-asset exposure (Caa/CCC/ 2nd liens)

Higher risky-asset exposure (Caa/CCC/2nd liens)

Higher BB MVOC
Lower equity distributions

Lower BB MVOC
Higher equity distributions

Strengths
Metric Analysis

Calculation Example

Data Source

Weaknesses

● Compensates for weaknesses of pure market-value NAV
and is less volatile
● Used as a proxy for how many loans are “money good”
(Loans 85+) – so this NAV would be a proxy for ultimate
terminal value for the equity – a PO estimate – as opposed
to liquidation value.

Assets
Size
Assets
$ Holdings Mkt. Px
NAV
Adj. NAV
307,500
Loans 1-105
240,000
100.3
100.3
100.0
63,750
Loans 106-130
120,000
99.5
99.5
100.0
28,125
Loans 131-160
80,000
94.0
94.0
100.0
31,250
Loans 161-171
28,000
84.0
84.0
80.0
29,375
Loans 171-176
10,000
74.5
74.5
65.0
5,938
Loans 176-180
14,000
63.0
63.0
65.0
44,385
Par or Mkt Val
492,000
475,110
478,000
Total
510,323
NAV
21%
27%
In a loan market selloff, if the average loan price drops to $96 or $94, the loans would likely still be money good but the typical
MV NAV would look worse; Adj. NAV would hold these loans at par.
Tranche
A
B
C
D
E
F
Subord

Liabilities
Rating
AAA
AA
A
BBB
BB
B
NR

● Not easily provided in Intex
● NAV metrics affected by vintage & equity / note prices
● May not adequately punish very low priced loans (ex <$50)
● Only provides a snapshot of the loan prices on a specific
day;this applies to all market-value metrics (NAV, loans < 80,
BB MVOC).

Intex, Wells Fargo Securities

CLO Metrics: Adjusted Net Asset Value (Adj. NAV)
100

The Median Adj. NAV is ~60%

20
Jan-13

Jan-14

2012

Jan-15
2013

Jan-16
2014

12%

2015

8%
6%
4%
2%
0%
20%

Jan-17

Higher Adj. NAV Often Associated with
Lower Caa or CCC Exposure

10%

Caa and CCC %

Adj. NAV by Vintage

100

2016

420

109

60%
80%
Adj. NAV
% Caa Exposure
% CCC Exposure

100%

Higher Adj. NAV Often Associated with
Lower WAS (Lower-Spread Pools)

Market Value Metrics Tend to Move Together
110

40%

400

107

WAS

BB MVOC

108

106

380
360

105
340

104
103
20%

40%

60%
Adj. NAV

80%

320

100%

NAV

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

20%

40%

60%
Adj. NAV

80%

100%

CLO Metrics: Moody’s Diversity Score
Metric

Moody's Diversity Score
Moody’s diversity score: based on how many assets, how many industries and how big the positions are. A par weighted
calculation that indicates collateral concentration in terms of both issuer and industry concentration.

Description/ Uses

Market Stats

The Moody’s Diversity score has three primary inputs: 1) number of industries, 2) number of assets and 3) par value of each
asset. The drivers of a higher diversity score are one or more of the following: more assets, less correlated assets (widely
distributed across more industries) and more evenly distributed par amount of the assets.
Median Level
Time
Current (Sep 2017)
74
12M Ago (Sep 2016)
70
18M Ago (Mar 2016)
68

Chg. From Current
4
6

Higher Diversity Pool
Common Metric
Pairs/Tradeoffs

Lower Diversity Pool

● More diversity is generally associated with lower
idiosyncratic risk and industry risk.
● On the flip side, extremely diverse pools could be
overweight smaller names or industries relative to the
market.
Strengths

Metric Analysis

● Lower diversity could be a sign of manager conviction in a
certain name or industry.

Weaknesses

● Easy to calculate/provided in Intex

● Diversity score may not be correlated with credit quality
● Managers may increase diversity to help with matrix tests
● Industry classifications may not be standardized

Moody's diversity score is provided in Intex.
Calculation Notes

Data Source

A deal's minimum diversity limit is calculated based on the Moody's Matrix, which is a sliding scale based on WAS, WARF, loan
recovery levels and diversity.
Intex

CLO Metrics: Moody’s Diversity Score
3,200

3,100

3,000

2,900

Diversity by Vintage

The Median Div. Score for newer post-crisis
vintages has ticked up in recent months.

45
Jan-13

Jan-14

2012

Jan-15
2013

Jan-16
2014

Jan-17
2015

WARF

2,800
2,700
2,600

2,500

70
80
Diversity

100

110

90%
80%
70%

MV NAV

Norm. Eq Pmt.

Higher Diversity Generally Unrelated to NAV

100%

5%
4%

60%
50%
40%
30%
20%

3%
2%

2016

Higher Diversity Has Slightly Positive
Relationship with Norm. Eq Pmts.

Higher Diversity Often Associated with
Lower WARF

10%
40

70
80
Diversity

100

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

110

70
80
Diversity

100

110

CLO Metrics: Normalized Equity Payment
Metric

Description/ Uses

Median Normalized Quarterly Equity Payment
Total Equity Distributions (during Reinvest. Period), converted to quarterly payments. The total sum of all equity payments
made during reinvestment, converted to an average quarterly payment. Equity distribution is the quarterly equity payment
divided by the equity notional value.
We can think of the quarterly distributions (the IO) and the NAV (the PO) as the two parts of the return – with the total return
as the distributions received to date plus the current portfolio value. If a manager has a low WAS portfolio – and low equity
distributions – then, all else equal, they should have a higher NAV, since they are taking less risk in the portfolio.

Market Stats

Chg.

Median Level
4.3%
4.8%

Time
Current (Sep 2017)
12M Ago (Sep 2016)

-0.5%

Higher Normalized Equity Payments

Lower Normalized Equity Payments

Common Metric
Pairs/Tradeoffs

● Higher WAS - and potentially higher exposure to riskier
assets (Caa/CCC/2nd lien)
● Higher leverage
● Lower market-value metrics (Eq. NAV, BB MVOC)

● Lower WAS - and potentially cleaner pools (lower
Caa/CCC/2nd lien)
● Lower leverage
● Higher market-value metrics (Eq. NAV, BB MVOC)

Metric Analysis

● Looks at average equity payments over time
● Adjusts for the fact that the first equity payments often differ
in payment period length, and differing first payment periods
can produce high or low first payments.

● Not provided in Intex
● Does not take into account the PO value of the pool
● Not adjusted for refi/ reset, which can affect equity NAV
& payments.
● Does not account for debt cost or vintage differences.

Example: 2016-Vintage Deal
Issue Date
Days Outstanding as of last payment date
Qtrs Outstanding as of last payment date
Payments / Equity Balance
Normalized Qtrly Payment/Equity Balance

Payment Dates
10/27/2016
1/27/2017
4/27/2017
7/27/2017
Total

Strengths

Calculation Notes

Data Source

Weaknesses

4/7/2016
470
5.15
29.8%
5.79%

Intex, Wells Fargo Securities

Payment
8,382,123
1,646,869
1,567,600
1,798,126
13,394,718

Not. Equity Bal.
44,900,000
44,900,000
44,900,000
44,900,000

CLO Metrics: Normalized Equity Payment
Higher Equity Pmts. Strongly Associated with
Higher WAS

440

3,100

420

3,000

WARF

400

WAS

Higher Eq. Pmts. Often Associated with
Higher WARF (Lower-Rated Assets)

3,200

380

2,900
2,800

360

2,700

340

2,600

320

2,500
2%

Norm. Eq. Pmts.

Higher Eq. Pmts. Often Associated with
Lower Market Value Metrics

Higher Equity Pmts. Often Associated with
Higher Leverage

13.0
12.5

80%

12.0
11.5

60%

Leverage

NAV and Adj. NAV

100%

4%
5%
6%
Norm. Eq. Pmts.

11.0

40%

10.5
10.0

20%

9.5
0%

4%
5%
6%
Norm. Eq. Pmts.
MV NAV

9.0

Norm. Eq. Pmts.

Adj. NAV

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

CLO Metrics: Leverage
Metric
Description/ Uses

Market Stats

Median Leverage
● Total initial deal balance / equity notional balance.
● The leverage category can be used to show how the manager is working to achieve equity returns: structural leverage vs.
leverage in the assets. When structuring a CLO, there are certain trade-offs – all else equal, a lower WARF (higher rated
assets) or higher diversity should allow for more leverage on the pool.
Median Level
10.8
10.5
10.4

Time
Current (Sep 2017)
12M Ago (Sep 2016)
18M Ago (Mar 2016)

Chg.
0.3
0.4

Higher Leverage
Common Metric
Pairs/Tradeoffs

Metric Analysis

Lower Leverage

● One manager style is to add an extra turn or two of
leverage, but with a very clean pool (below avg WAS, better
than avg WARF).
● Higher structural leverage allows more room for lower asset
leverage (potentially lower WAS or WARF)
● Higher diversity

● Higher WARF (lower rated assets)
● Lower diversity

Strengths

Weaknesses

● Easy to calculate in Intex
● Uses equity notional balance - similar to equity payment data
● Less volatile than calculating based on asset leverage which
is constantly changing
● More levered deals will show faster moves in market value
metrics (NAV, MVOC)

● Based on structural leverage, not actual asset leverage
– not based on assets/ (assets-debt), which technically
would be more accurate; based on total deal balance /
equity notional.
● We use structural leverage because a) equity pmts are
frequently quoted as a pct of notional par and b) the asset
balance is constantly changing.

Calculation Example

Tranche
A
B
C
D
E
Subord
Total

Rating
AAA
AA
A
BBB
BB
NR

Data Source

Intex, Wells Fargo Securities

Size
372,000
84,000
36,000
36,000
24,000
56,000
608,000

Leverage
Structural Leverage

= 608,000 / 56,000
10.9

CLO Metrics: Leverage
Higher Leverage Often Associated with
Higher Equity Pmts.

5%
4%

85
75
65

3%
2%

55
45
9

11
Leverage

Higher Leverage Often Associated with
Higher WAS (Higher-Spread Pools)

420

11
Leverage

Higher Leverage Often Associated with
Lower MV NAV

100%

400

80%

MV NAV

WAS

Higher Leverage Could be Offset by
Higher Diversity

105

Diversity

Norm. Equity Pmt.

380
360

60%
40%

340

20%

320

0%
9

11
Leverage

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

11
Leverage

CLO Metrics: Min. OC Cushion
Metric
Description/ Uses

Median Minimum Overcollateralization Cushion (Min OC Cushion)
● Difference between actual OC level and OC Test limit for the tightest OC test in the deal (not including Int. Diversion
tests – only true OC tests). Used to show how close an equity cashflow diversion is.
● OC Test: Par-based asset/liability coverage test. Given a tranche, X, the OC ratio = Adj. Principal Value of Collateral / Sum
of prin. for tranche X and all tranches senior to X
Time

Market Stats

Common Metric
Pairs/Tradeoffs

Metric Analysis

Calculation Example

Median Level

Chg.

419
391
425

28
-5

Current (Sep 2017)
12M Ago (Sep 2016)
18M Ago (Mar 2016)

Higher Min. OC

● In theory, we would hope a manager with lower Min. OC
cushion would have recently cleaned up their pool/sold
assets at a discount at the cost of min. OC

● Included in Intex
● Provides a proxy for par building
● Haircut for excess Caa / CCC exposure, defaulted
assets and discount purchases

● Some deals may have single B OC tests (~ 20-30% of
single-B tranches have OC tests)
● Does not account for initial structuring or OC calculation
differences.
● Only a snapshot; does not show OC gained or lost

Tranche
Rating
A-1
AAA
A-2
AA
B
A
C
BBB
D
BB
Subord
NR
Total Liabilities

Size

372
84
36
36
24
56
608

OC Ratio Numerator
Agg. Principal Value of Underlying Assets
Cash & Eligible Investments
Total Assets
Data Source

Lower Min. OC

● Lower Caa / CCC / Defaulted asset exposure - which
can sometimes be haircut in the min. OC cushion
calculation
d
h
(
ll l
b l
$ )
Strengths

Weaknesses

Denominator Calc
[372]
[372 + 84]
[372 + 84 + 36]
[372 + 84 + 36 + 36]
[372 + 84 + 36 + 36 + 24]

Numer. Curr. Val
600
1.61
600
1.32
600
1.22
600
1.14
600
1.09

Trigger Cushion (bps)
1.21
1.14
1.08
1.05

1058
795
564
400

P/F
PASS
PASS
PASS
PASS
PASS

This example deal has a min. OC cushion of 400 bps.

595
5
600

Intex, Wells Fargo Securities

CLO Metrics: Min. OC Cushion

5.5

The median Min. OC Cushion Declined in H1 2016
but has since remained generally flat

5.0

4.5

4.0

3.5

3.0
Jan-14

3.0

Jan-15

2012

2014

Jan-17
2015

8%
6%
4%
2%
0%

5.5

Bid Depth

6.0

4%
3%

4.5
4.0

3.5
150

250
350
Min. OC Cushion

450

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

3.0

550

350
450
550
Min OC Cushion
% CCC Exposure

5.0

250

Higher Min OC Slightly Associated with
Lower Bid Depth

6.5

150

% Caa Exposure

2016

Higher Min OC Often Associated with
Lower Loans < $80

Loans < $80

2013

Jan-16

10%

5.5

5.0

Higher Min OC Often Associated with
Lower Caa or CCC Exposure

12%

6.0

Caa and CCC %

Median Min OC Cushion

6.0

150

250
350
Min. OC Cushion

450

550

CLO Metrics: Caa Exposure and CCC Exposure
Metric
Description/ Uses

Median Caa Exposure and Median CCC Exposure
● Intex’s fields show % of the portfolio rated Caa or below, and the % of the portfolio rated CCC or below
● Generally, we have found that Moody's Caa exposure in a CLO is based on facility rating, while S&P's CCC exposure is based
on issuer rating.
Time

Market Stats

Med. Caa
4.30
4.88
3.97

Current (Sep 2017)
12M Ago (Sep 2016)
18M Ago (Mar 2016)

Chg.

Med. CCC
3.80
3.93
2.45

-0.58
0.33

Higher Caa or CCC Exposure
Common Metric
Pairs/Tradeoffs

●
●
●
●

Chg.
-0.13
1.35
Lower Caa or CCC Exposure

Higher spread assets (higher WAS)
Higher WARF
Lower Min OC Cushion
Lower market-value metrics (NAV, Adj. NAV, BB MVOC)

●
●
●
●

Cleaner pools - lower WARF
Lower spread pools
Higher Min OC Cushion
Higher market-value metrics (NAV, BB MVOC)

Strengths

Weaknesses / Caveats

● Included in Intex
● Clear calculation of lower-rated assets in the portfolio
Metric Analysis

Calculation Example

Security
Company
Company
Company
Company
Company
Company

1
2
3
4
5
6-200

Prin. Bal.
3.0
2.9
2.9
2.5
3.7
479.3

Total Asset Bal

494.3

MDY Rtg
B3
B3
Caa1
Caa3
Caa1
B2

S&P Rtg
CCC
CCC+
CCCCCCCCC
BB

● May be calculated differently from deal to deal.
● Also, the data reported in Intex may refer to concentration
limits, not to Excess Caa or Excess CCC Test levels used for
OC test calculation; Actual Caa or CCC holdings may be
higher or lower.
● May not include data from deals not rated by that rating
agy. If Moody's did not rate the deal, we may not have Caa%
data.
Caa Exp

Total Caa or CCC
Total Assets
% Exposure

2.9
2.5
3.7

CCC Exp
3.0
2.9
2.9
2.5
3.7

9.1
494.3
1.8%

15.0
494.3
3.0%

CLO Metrics: Caa Exposure and CCC Exposure
7.0

Median Caa Exposure Increased During 2016
but has Since Flattened or Dropped

6.0

5.0

4.0

3.0

2.0

1.0

0.0
Jan-14

0.0

Jan-15

2012

Jan-16

2013

2014

Jan-17
2015

12%

8%
6%
4%
2%
0%
320

12%

Caa and CCC %

10%

Caa and CCC %

10%

6%
4%
2%
0%

150

360

350
450
550
Min OC Cushion
% Caa Exposure
% CCC Exposure

WAS

380

400

420

% CCC Exposure

Higher Caa or CCC Exposure Often Associated
with Lower MV Metrics

6%
4%
2%
0%
20%

250

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

340

% Caa Exposure

2016

Higher Caa or CCC Often Associated with
Lower Min OC Cushion

12%

Higher Caa or CCC Often Associated with
Higher WAS

10%

Caa and CCC %

Med. Reported Caa Holdings

7.0

40%

60%
Adj. NAV
% Caa Exposure

80%
% CCC Exposure

100%

CLO Metrics: Second Lien Exposure
Metric
Description/ Uses

Market Stats

Median 2nd Lien Exposure
● The percent of 2nd lien loans held by the CLO
● Used as a proxy for portfolio risk
Med. Caa
Time
Current (Sep 2017)
1.77
12M Ago (Sep 2016)
2.14
18M Ago (Mar 2016)
2.64

Chg.
-0.37
-0.87

Higher 2nd Lien Exposure

Common Metric
Pairs/Tradeoffs

Lower 2nd Lien Exposure

● In general, we would expect higher 2nd liens to be
associated with:
● Higher spread assets (higher WAS)
● Higher WARF
● Lower market-value metrics (NAV, Adj. NAV, BB MVOC)

● Cleaner pools - lower WARF
● Lower spread pools
● Higher market-value metrics (NAV, BB MVOC)

However, some managers appear to employ a barbell
approach, where higher second lien exposure doesn't
necessarily equate to a riskier portfolio
Strengths
Metric Analysis

Weaknesses / Caveats

● Included in Intex
● Clear calculation of second-lien assets in portfolio

Provided in Intex as a percent of the deal's asset balance
Calculation Example

Data Source

Intex, Wells Fargo Securities

● Does not stand alone as a proxy for risk - managers may
employ a barbell approach in choosing assets
● Deals with high 2nd lien holdings may see a disconnect
between Caa and CCC % (facility rating vs. issuer rating)

CLO Metrics: Second Lien Exposure
Second Lien Exposure has declined since Jan
2015 but has recently ticked up

4.0

3.0

2.0

Higher 2nd Liens Generally Unrelated to
WAS Level

420
400

WAS

Med. 2nd Lien Exposure

4.0

380
360

1.0

340
0.0
Jan-14

Jan-15

2012

2013

Jan-16
2014

Jan-17
2015

0.0

320

Higher 2nd Lien managers tend to have more
liquid portfolios (higher bid depth)

6.5

2.0
3.0
2nd Liens (% Exp)

4.0

5.0

Norm. Eq Pmt.

Bid Depth

1.0

Higher 2nd Liens Have Slightly Positive
Relationship with Norm. Eq Pmts.

6.0
5.5
5.0
4.5
4.0
3.5

2016

6%
5%
4%
3%

1.0

2.0
3.0
2nd Liens (% Exp)

4.0

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

5.0

1.0

2.0
3.0
2nd Liens (% Exp)

4.0

5.0

CLO Metrics: < $80 Exposure
Metric

Description/ Uses

Market Stats

Median Exposure to Loans Trading < $80
● Average # of loans in the pool that have current market prices below 80 – the traditional cut-off for a ‘distressed loan’ in the
loan market.
● Used to illustrate tail risk or as a proxy for near term (12-24 month) default risk in the pool.
● If average recoveries (measured by post default trading price) are ~65, then a loan trading below 80 is typically trading as if
the market thinks it will default.
Time
Current (Sep 2017)
12M Ago (Sep 2016)
18M Ago (Mar 2016)

Loans < $80

Chg.

2.4%
4.5%
9.5%

-2.1%
-7.1%

Higher Loans < $80
Common Metric
Pairs/Tradeoffs

●
●
●
●

Lower Loans < $80

Higher spread assets (higher WAS)
Higher WARF
Lower Min OC Cushion
Lower market-value metrics (NAV, Adj. NAV, BB MVOC)
Strengths

Metric Analysis

Provided in LPC Collateral's Database by Deal

Data Source

LPC Collateral

Cleaner pools - lower WARF
Lower spread pools
Higher Min OC Cushion
Higher market-value metrics (NAV, Adj. NAV, BB MVOC)
Weaknesses / Caveats

● Trading prices can be a good proxy for whether market
believes a loan will default
● Commonly used metric for tail risk in CLO portfolios

Calculation Example

●
●
●
●

● Does not account for purchase price. Manager could have
bought a loan at $0.25 which now trades at $0.79 and it
would still be included in our metric.
● Also, at various points, <80 is arguably too high or too low
a cut-off for tail risk.
● Based on a snapshot of the loan prices on the day we
determine the underlying portfolio market value - this applies
to all market-value metrics (NAV, loans < 80, BB MVOC).

CLO Metrics: < $80 Exposure
15%

15%

Loans below $80 have
ticked up in recent months

12%

6%
5%
4%

3%
3%

0%
Jan-14

Jan-15

2012

2013

Jan-16
2014

Jan-17
2015

90%

3%
4%
Loans < $80

Higher Loans < $80 Have Negative Relationship
with Min OC Cushion

550
500
450

70%

400

Min OC Cushion

80%
60%
50%
40%
30%
20%

350
300
250
200
150
100

10%
0%

2016

Higher Loans < $80 Associated with
Lower MV Metrics

100%

MV NAV

Norm. Eq Pmt.

Med. Pct. of Loans < 80

12%

Higher Loans < $80 Have Positive Relationship
with Norm. Eq Pmts.

50
0%

3%
4%
Loans < $80

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

3%
4%
Loans < $80

CLO Metrics: Wtd. Avg. Bid Depth
Metric

Description/ Uses

Market Stats

Median Weighted Average Bid Depth
● Average of the # of bids on the loans in the CLO portfolio used in our portfolio pricing, per our CLO asset pricing tool
● Avg. Bid depth is an attempt to show the level of liquidity on assets in underlying CLO portfolios. Used to show which
managers are taking liquidity risk – typically, we would think of loans with fewer bids as smaller loans – ‘upper middle market’
or ‘lightly syndicated loans.’
● Because a CLO is not a mark to market vehicle, and the CLO does not have forced liquidation provisions, we believe liquidity
risk within a CLO portfolio is acceptable – however, we also want CLO investors to understand how certain managers may be
achieving higher spread pools or driving a favorable WAS/WARF ratio.
Time
Current (Sep 2017)
12M Ago (Sep 2016)

Bid Depth
4.90
4.42

Chg.
0.48

Higher Bid Depth
Common Metric
Pairs/Tradeoffs

Lower Bid Depth

● More volatile market-value metrics, due to increased
liquidity
● Lower spread pools

● Typically, a lower bid depth corresponds with higher spread
portfolios.
● More stable market-value metrics, due to less liquidity—but
may face larger jumps in prices in a stress period.

Strengths
Metric Analysis

Calculation Example

Data Source

Weaknesses / Caveats

● Can help investors understand how a CLO manager may
be achieving higher spread pools or driving a favorable
WAS/WARF ratio.
Example Deal: Assets
$ Holdings
Loans
161,676
Loans
136,292
Loans
103,743
Loans
135,003
Loans
125,990
Loans
63,643
Loans
64,052
Total
790,399
Wtd. Avg. Bid Depth
Assets
1-70
71-144
145-193
194-257
258-304
305-341
341-363

Bid Depth

1
2
3
5
7
9
10

4.45

LPC Collateral

● Does not account for quality/size of bids in the market.

CLO Metrics: Wtd. Avg. Bid Depth
Lower Bid Depth Often Associated with
Higher WAS (Higher-Spread Pools)

420

Lower Bid Depth Often Associated with
Higher Eq. Pmts.

Normalized Eq. Pmt

WAS

400
380
360

2%
3.5

4.0

4.5

5.0
Bid Depth

5.5

6.0

6.5

Lower Bid Depth Often Associated with
Higher Caa Exposure

12%

4.0

4.5

5.0
Bid Depth

5.5

6.0

6.5

Lower Bid Depth Often Associated with
Lower MV NAVs

90%
80%
70%

MV NAV

8%
6%
4%

60%
50%
40%
30%
20%

2%
0%

3.5

100%

10%

Caa %

340
320

10%
3.5

4.0

4.5

5.0
Bid Depth

5.5

6.0

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

6.5

3.5

4.0

4.5

5.0
Bid Depth

5.5

6.0

6.5

CLO Metrics: MV NAV
Metric
Description/ Uses

Market Stats

Common Metric
Pairs/Tradeoffs

Metric Analysis

Market Value NAV
The equity market value NAV of the CLO equity tranche (expressed as a pct of equity notional balance). Can be thought of as
the liquidation value of the CLO – the value to the equity if the manager sold all the assets and paid off the notes. Calculated
by taking the market value of the portfolio minus the face value of all debt tranches outstanding, divided by equity notional.
May not account for incentive mgmt. fees or deferred fees.
Time
Median Level
Current (Sep 2017)
58.0%
12M Ago (Sep 2016)
42.3%
18M Ago (Mar 2016)
-0.8%

15.7%
58.8%

Higher NAV Pool

Lower NAV Pool

Lower risky-asset exposure (Caa/CCC/ 2nd liens)
Lower loans < $80 exposure

Higher risky-asset exposure (Caa/CCC/2nd liens)
Higher loans < $80 exposure

Strengths
● Provides proxy for liquidation value of the CLO - if
we sold the assets today and paid off all the debts
● Can be used to proxy total returns to equity Equitiy NAV (PO) + Cashflows paid to date
● Commonly used in pricing and trading secondary
equity.

Weaknesses
● CLO is not a mark to market vehicle, and the CLO does not have
forced liquidation provisions. A CLO provides the equity investor
with term leverage with no mark to market pressure, and investors
can’t force a liquidation prior to the call – so measuring daily loan
price movements may not always make sense. For example – if loan
outflows lead to loan market selling, all loans may fall in price. If half
the pool drops from 99 to 94, the NAV drops 25 points – but we
wouldn’t think the actual credit quality has actually changed.
● A snapshot of the loan prices on the day we determine the
underlying portfolio market value
● Not adjusted for refi/ reset, which can affect NAV and eq. pmts.
● Does not account for initial structuring differences.

Calculation Example

Total
Data Source

Chg.

Tranche
A
B
C
D
E
Subord

Liabilities
Rating
AAA
AA
A
BBB
BB
NR

Size
314,100
60,900
36,000
25,700
23,300
52,500
512,500

Markit, Wells Fargo Securities

Assets
Assets
$ Holdings Mkt. Px
Loans 1-105
240,000
100.3
Loans 106-130
120,000
99.5
Loans 131-160
86,000
98.0
Loans 161-171
28,000
87.0
Loans 171-180
20,000
70.0
Par or Mkt Val
494,000
482,760
NAV
43%

CLO Metrics: MV NAV
MV NAV has moved sideways in 2017 due to
limited loan market volatility

420

400

Median Equity NAV

-20
Jan-14 Jul-14
2012

Jan-15 Jul-15
2013

Jan-16
2014

Jul-16

Jan-17
2015

340

-20
Jul-17
2016

320

40%

60%
MV NAV

80%

100%

Market Value Metrics Tend to Move Together
110
109

108

BB MVOC

Norm. Eq. Pmts.

20%

Higher MV NAV (PO) Often Associated with
Lower Equity Pmts. (IO)

4%
3%

107
106
105

2%
1%
20%

380
360

WAS

100

Higher MV NAV Often Associated with
Lower WAS (Lower-Spread Pools)

104
40%

60%
MV NAV

80%

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

103
20%

100%

40%

60%
Adj. NAV

80%
NAV

100%

CLO Metrics: BB MVOC
Metric
Description/ Uses

Market Stats

Common Metric
Pairs/Tradeoffs

BB MVOC
● The Market Value OC Ratio of the BB notes. For example, if we liquidated the pool today, how covered are BB notes. OC ratio
uses the most recent market value of the collateral instead of the par / haircut value.
● Class B MVOC = market value of collateral / (Par value class A notes + Par value class B notes outstanding).
Time
Median Level
Current (Sep 2017)
107.0
12M Ago (Sep 2016)
105.7
18M Ago (Mar 2016)
101.1

Chg.
1.3
5.9

Higher BB MVOC Pool

Lower BB MVOC Pool

Lower risky-asset exposure (Caa/CCC/ 2nd liens)
Lower loans < $80 exposure
Strengths

Weaknesses

● Provides proxy for market value coverage of the BB
tranche
● Commonly used in pricing and trading secondary
tranches

● Data is based on a snapshot of the loan prices on the day we
determine the underlying portfolio market value
● Does not account for initial structuring differences. Deals may have
higher or lower OC cushion at issuance due to trade-offs in the
structuring process.
● CLO is not a mark to market vehicle, and the CLO does not have
forced liquidation provisions. A CLO provides the equity investor with
term leverage with no mark to market pressure, and investors can’t
force a liquidation prior to the call – so measuring daily loan price
movements may not always make sense.

Liabilities
Tranche
Rating
A
AAA
B
AA
C
A
D
BBB
E
BB
Subord
NR
Par Value of Liabilities
Market Value of Assets

OC Calculations
OC Coverage
OC Ratio
= 490 / [314]
156.0
= 490 / [314+61]
130.7
= 490 / [314+61+36]
119.2
= 490 / [314+61+36+26]
112.2
= 490 / [314+61+36+26+23]
106.5

Metric Analysis

Calculation Example

Data Source

Higher risky-asset exposure (Caa/CCC/2nd liens)
Higher loans < $80 exposure

Size

314
61
36
26
23
53
513
490

Markit, Wells Fargo Securities

The BB tranche is 1.06x covered on a market value basis

CLO Metrics: BB MVOC
110

110

108

106

104

102

100

98
Jan-12

2012

400

Jan-14
2013

Jan-15

Jan-16

2014

340
320

Jan-17

2015

Higher MV Metrics (like BB MVOC) Often
Associated with Lower Equity Pmts. (IO)

104

105

106
BB MVOC

107

108

109

Market Value Metrics Tend to Move Together
110
109

BB MVOC

108

5%
4%

107
106

105

104

1%
103

103

2016

Norm. Eq. Pmts.

380
360

98
Jan-13

Higher BB MVOC Often Associated with
Lower WAS (Lower-Spread Pools)

420

WAS

At the trough of 2016 volatility, the average BB
tranche was not covered on a MV basis

104

105

106
BB MVOC

107

108

Sources: Intex, LPC Collateral
Scatter plots show manager median data from the 9/2017 Style Guide

103
20%

109

40%

60%
Adj. NAV

80%
NAV

100%

Disclosure Appendix

Additional information is available on request.
Analyst’s Certification
The research analyst(s) principally responsible for the report certifies to the following: all views expressed in this research report accurately reflect the analysts’ personal
views about any and all of the subject securities or issuers discussed; and no part of the research analysts’ compensation was, is, or will be, directly or indirectly, related
to the specific recommendations or views expressed by the research analyst(s) in this research report.
Important Disclosures Relating to Conflicts of Interest and Potential Conflicts of Interest
Wells Fargo Securities does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities research analysts receive
compensation that is based on and affected by the overall profitability of their respective department and the firm, which includes, but is not limited to, investment
banking revenue. Wells Fargo Securities may sell or buy the subject securities to/from customers on a principal basis or act as a liquidity provider in such securities.
Wells Fargo Securities Fixed Income Research analysts interact with the firm’s trading and sales personnel in the ordinary course of business. The firm trades or may
trade as a principal in the securities or related derivatives mentioned herein. The firm’s interests may conflict with the interests of investors in those instruments.
About Wells Fargo Securities
Wells Fargo Securities is the global brand name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but
not limited to Wells Fargo Securities, LLC, a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of NYSE, FINRA, NFA and
SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, Wells Fargo Bank, N.A., Wells Fargo Securities Asia Limited, a Hong Kong Incorporated
investment firm licensed and regulated by the Securities and Futures Commission to carry Types 1, 4, 6 and 9 regulated activities and Wells Fargo Securities
International Limited, a U.K. entity investment firm authorized and regulated by the Financial Conduct Authority. The Wells Fargo Securities legal entity that takes
responsibility for the production of the Product is the legal entity which the first named author is employed by. Non-US analysts may not be associated persons of Wells
Fargo Securities, LLC. and therefore may not be subject to FINRA Rule 2242 restrictions on communications with subject company, public appearances and trading
securities by the analysts, but will be subject to their own local regulatory requirements.
Notice to U.S. Investors
Unless prohibited by the provisions of Regulation S of the 1933 Act, this material is distributed in the U.S., by Wells Fargo Securities, LLC, which takes responsibility for
its contents in accordance with the provisions of Rule 15a-6 and the guidance thereunder, under the U.S. Securities Exchange Act of 1934. Any transactions in securities
identified herein may be effected only with or through Wells Fargo Securities, LLC.

Disclosure Appendix
Important Information for Non-U.S. Clients
EEA
The securities and related financial instruments described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. For recipients in the
EEA, Wells Fargo Securities International Limited (“WFSIL”) disseminates Research which has been approved for the purposes of Section 21 of the Financial Services
and Markets Act 2000 (“the Act”). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Conduct Authority. For the purposes of
Section 21 of the Act, WFSIL does not deal with retail clients. The FCA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients
will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail
clients.
Australia
Each of Wells Fargo Securities, LLC, Wells Fargo Securities Asia Limited and Wells Fargo Securities International Limited is exempt from the requirements to hold an
Australian financial services license in respect of the financial services it provides to wholesale clients in Australia. Wells Fargo Securities, LLC is regulated under U.S.
laws, Wells Fargo Securities Asia Limited is regulated under Hong Kong law, and Wells Fargo Securities International Limited is regulated under U.K. law, all of which
differ from Australian laws. Any offer or documentation provided to Australian recipients by Wells Fargo Securities in the course of providing the financial services will
be prepared in accordance with the laws of the United States, Hong Kong or U.K. and not Australian laws.
Hong Kong
This report is issued and distributed in Hong Kong by Wells Fargo Securities Asia Limited (“WFSAL”), a Hong Kong incorporated investment firm licensed and regulated
by the Securities and Futures Commission ("SFC") to carry on types 1, 4, 6 and 9 regulated activities (as defined in the Securities and Futures Ordinance (Cap. 571 of The
Laws of Hong Kong), “the SFO”). This report is not intended for, and should not be relied on by, any person other than professional investors (as defined in the SFO).
Any securities and related financial instruments described herein are not intended for sale, nor will be sold, to any person other than professional investors (as defined in
the SFO). The author or authors of this report may or may not be licensed by the SFC. Professional investors who receive this report should direct any queries regarding
its contents to Mark Jones at WFSAL (email: wfsalresearch@wellsfargo.com ).
Japan
This report is distributed in Japan by Wells Fargo Securities (Japan) Co., Ltd, registered with the Kanto Local Finance Bureau to conduct broking and dealing of type 1
and type 2 financial instruments and agency or intermediary service for entry into investment advisory or discretionary investment contracts. This report is intended for
distribution only to professional investors (Tokutei Toushika) and is not intended for, and should not be relied upon by, ordinary customers (Ippan Toushika).
The ratings stated on the document are not provided by rating agencies registered with the Financial Services Agency of Japan (JFSA) but by group companies of JFSAregistered rating agencies. These group companies may include Moody’s Investors Services Inc, Standard & Poor’s Rating Services and/or Fitch Ratings. Any decisions
to invest in securities or transactions should be made after reviewing policies and methodologies used for assigning credit ratings and assumptions, significance and
limitations of the credit ratings stated on the respective rating agencies’ websites.

Disclosure Appendix

Published reports and additional disclosure information are available at www.wellsfargoresearch.com.
This report is for your information only and is not an offer to sell, or a solicitation of an offer to buy, the securities or
instruments named or described in this report. Interested parties are advised to contact the Wells Fargo entity in their
local jurisdiction with which they deal, or the entity that provided this report to them, if they desire further information
or if they wish to effect transactions in the security discussed in this report. The information in this report has been
obtained or derived from sources believed by Wells Fargo Securities, to be reliable, but Wells Fargo Securities does not
represent that this information is accurate or complete. Certain text, images, graphics, screenshots and audio or video
clips included in this report are protected by copyright law and owned by third parties (collectively, “Third Party
Content”). Third Party Content is made available to clients by Wells Fargo under license or otherwise in accordance
with applicable law. Any use or publication of Third Party Content included in this report for purposes other than fair
use requires permission from the copyright owner. Certain website links included in this publication are not
maintained, controlled or operated by Wells Fargo Securities. Wells Fargo Securities does not provide the products and
services on these external websites and the views expressed on these websites do not necessarily represent those of
Wells Fargo Securities. Please review the applicable privacy and security policies and terms and conditions for the
website you are visiting. Credit Strategists focus on investment themes across the credit markets and sectors. Any
discussion within a Credit Strategy report of specific securities is not intended to provide a fundamental analysis of any
individual company described therein. The information provided in Credit Strategy reports is subject to change
without notice, and investors should not expect continuing information or additional reports relating to any security
described therein. Any opinions or estimates contained in this report represent the judgment of Wells Fargo Securities
at this time, and are subject to change without notice. For the purposes of the U.K. Financial Conduct Authority's rules,
this report constitutes impartial investment and substantive research. Each of Wells Fargo Securities, LLC, and Wells
Fargo Securities International Limited is a separate legal entity and distinct from affiliated banks. Copyright © 2017
Wells Fargo Securities, LLC.
This report was prepared by Wells Fargo Securities, LLC.
SECURITIES: NOT FDIC-INSURED * NOT BANK-GUARANTEED * MAY LOSE VALUE

Source Exif Data:

File Type                       : PDF
File Type Extension             : pdf
MIME Type                       : application/pdf
PDF Version                     : 1.5
Linearized                      : Yes
Author                          : valeriop
Comments                        : Wells Fargo Template V1.2
Company                         : Wells Fargo & Co.
Content Type                    : Document
Create Date                     : 2017:10:10 15:00:25-04:00
Modify Date                     : 2017:10:10 15:02:16-04:00
Display Urn Schemas-microsoft-com Office Office Author: Tenorio, Lisa M.
Display Urn Schemas-microsoft-com Office Office Editor: Tenorio, Lisa M.
Language                        : EN-US
Tagged PDF                      : Yes
XMP Toolkit                     : Adobe XMP Core 5.6-c015 84.159810, 2016/09/10-02:41:30
Metadata Date                   : 2017:10:10 15:02:16-04:00
Creator Tool                    : Acrobat PDFMaker 15 for PowerPoint
Document ID                     : uuid:bf781d5e-be98-418a-acee-066256ae5724
Instance ID                     : uuid:72ff0bf1-8209-401d-a7ec-cb1a69531178
Format                          : application/pdf
Title                           : Title set in  Georgia 50pt
Creator                         : valeriop
Producer                        : Adobe PDF Library 15.0
Display urn 003 Aschemas-microsoft-com 003 Aoffice 003 Aoffice 0023 Editor: Tenorio, Lisa M.
Display urn 003 Aschemas-microsoft-com 003 Aoffice 003 Aoffice 0023 Author: Tenorio, Lisa M.
Page Layout                     : SinglePage
Page Count                      : 34

EXIF Metadata provided by EXIF.tools

Set In Georgia 50pt WFC CLO Style Guide

Navigation menu

Versions of this User Manual:

Views

Navigation