hard · Private Credit underwriting-credit-analysis
A CLO equity tranche ($50M size) receives the residual cash flow from a $500M loan pool. The pool earns $18.75M in annual interest and has $11.15M in total costs (debt tranches and fees).
If the pool suffers a 2% annual default rate with a 65% recovery rate, what is the adjusted annual yield on the equity tranche?
- 5.4%
- 12.0%
- 8.2%
- 15.2%
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