CLO Equity NAV
Definition
CLO equity NAV, the net asset value of a CLO's subordinated notes, is what the equity would be worth if the deal were unwound today: the market value of the loan portfolio plus cash in the accounts, minus the rated notes at par and accrued fees, divided by the equity's notional amount. Because the equity is typically 8 to 10 percent of the capital structure, a one-point move in loan prices moves the equity NAV by roughly ten points. It is a mark, not a cash flow; the equity's income is the excess spread the deal pays out each quarter, which can continue while NAV is zero or negative.
Why it matters
CLO equity is the one part of the CLO market that individual investors actually own, through listed funds that report a NAV every month, and NAV is the number those investors watch. It is also the number most likely to be misread. NAV is a leveraged mark on loan prices; it falls ten times as fast as the loans and it can go negative while the deal keeps paying. The distributions those funds send out are excess spread, a different quantity with a different driver. Understanding which of the two you are looking at, and why a fund can pay a double-digit yield while its NAV halves, is the whole diligence question for this asset. Eagle Point Credit's record is the worked example: NAV per share down from $13.39 to $5.70 over four years, with the distribution increasingly paid as return of capital.
Common misconceptions
- •NAV is not what the equity earns. Distributions are the excess spread left after the notes and fees each quarter; NAV is the mark on the residual. A deal can distribute 20 percent on cost in a year in which its NAV falls by half.
- •A negative NAV does not stop distributions. The coverage tests that would divert cash use par with haircuts, not market prices, so a deal whose loans have sold off can keep paying the equity as long as defaults and excess CCC holdings stay inside the tests.
- •A fund's NAV is not the sum of its deals' loan prices. Each CLO equity position is marked by discounting its projected cash flows at a market rate, informed by dealer quotes. Two funds holding the same deal can carry it at different marks.
- •NAV per share falling is not, by itself, a loss. Older CLO equity amortizes: as a deal pays down its notes after reinvestment, the equity's remaining value shrinks while cash comes back. The question is whether the cash returned exceeded the NAV given up, which is what an IRR measures and a NAV series cannot.
Technical details
The formula and a worked example
NAV = (market value of collateral loans + principal cash + interest cash) minus (rated notes outstanding at par + accrued fees and expenses), divided by equity notional.
Example: $500 million par of loans at an average price of 98 = $490 million; $8 million of cash; $455 million of rated notes; $2 million of accrued fees. NAV = 490 + 8 - 455 - 2 = $41 million, on $45 million of equity notional: 91 percent of par.
Loans fall 3 points to 95: collateral value $475 million, NAV = 475 + 8 - 455 - 2 = $26 million, 58 percent of par. A 3.1 percent move in the loans produced a 37 percent move in the equity.
Loans fall to 88, as in March 2020: collateral $440 million, NAV = 440 + 8 - 455 - 2 = -$9 million. Negative NAV, and the deal likely still distributing, because par-based OC tests do not see price.
Why NAV and cash flow diverge
Distributions come from the interest waterfall: loan coupons minus note coupons minus fees, paid quarterly. For a deal earning 3.5 percent of spread on $500 million against notes costing 2.0 percent on $455 million, that is roughly $8 million a year on $45 million of equity, before defaults.
NAV comes from the balance sheet: the loans' market value against the notes' par. Loan prices move on rates, credit spreads and sentiment, none of which change the coupons the loans pay this quarter.
The two reconcile only over the life of the deal. Every dollar of price decline is either a future default (which eventually cuts cash flow) or a mark that recovers as loans pull to par. Which one it is decides whether a low NAV was a loss or a buying opportunity, and nobody knows in advance.
Reinvestment, amortization and the NAV path
During the reinvestment period, repayments are reinvested and the notes stay outstanding; NAV tracks loan prices and par-building or par-burning trades.
After the reinvestment period, repayments pay down the senior notes. Leverage falls, the equity's share of the structure rises, and NAV per unit of equity typically stabilizes even as cash flow shrinks, because the cheapest financing is being repaid first.
For a fund holding many deals of different ages, NAV per share drifts down structurally as older positions amortize and return cash, unless the cash is reinvested in new equity at prices below the fund's own NAV. Reading a fund's NAV series requires knowing how much of the decline is amortization and how much is loss.
How funds mark CLO equity
Listed CLO equity funds value each position at fair value, most often by projecting the position's cash flows under assumptions for defaults, recoveries, prepayments and reinvestment spreads, then discounting at a market yield taken from recent secondary trades and dealer quotes.
The discount rate is the swing input. In stressed markets the required yield on CLO equity widens sharply, so marks fall further than the underlying loans would imply; in calm markets it tightens.
Because the mark is modeled, two funds can carry the same deal at different values, and a fund's NAV can move on assumption changes with no trade in the loans. The audited annual financial statements disclose the valuation methodology and the range of discount rates used.
Reading Eagle Point's series
AltStreet's Eagle Point Credit review records NAV per share of $13.39 at the end of 2021, $9.07 at the end of 2022, $7.00 at September 30, 2025 and $5.70 at the end of 2025.
Over the same period the distribution was maintained, then cut 57 percent in April 2026, and its tax character shifted: per the fund's Form 1099-DIV characterizations, 54.99 percent of 2025 common distributions were return of capital, after zero in 2021 through 2023 and 5.90 percent in 2024.
That combination, a steady payout against a falling NAV with a rising return-of-capital share, is what the arithmetic above predicts when distributions are paid from excess spread while the marks decline. Whether the marks were losses or amortization is answered by the realized returns on positions the fund has exited, not by the NAV series alone.
Frequently asked questions
- How is CLO equity NAV calculated?
- Market value of the collateral loans, plus principal and interest cash in the deal's accounts, minus the outstanding rated notes at par, minus accrued senior and subordinated management fees and expenses, divided by the equity's notional amount. The result is quoted as a percentage of par or, for a fund, per share.
- Why does CLO equity NAV move so much?
- Leverage. In a deal with $500 million of loans and $455 million of notes, the equity's NAV is the $45 million residual. If loan prices fall 2 points, the collateral loses $10 million and the equity NAV falls to $35 million, a 22 percent drop from a 2 percent move. The notes do not change in par, so every dollar of collateral movement lands on the equity.
- Can CLO equity NAV be negative?
- Yes. When the market value of the loans falls below the par of the notes, NAV is negative. In March 2020, with leveraged loans trading in the high 70s and low 80s, many CLO equity positions had NAVs at or below zero. The equity still received distributions in most deals, because coverage tests use par with haircuts rather than market prices.
- What is the difference between CLO equity NAV and its cash yield?
- NAV is a liquidation mark; the cash yield is the quarterly distribution as a percentage of the original investment. They diverge constantly: a deal can pay 15 to 20 percent cash on cost while its NAV is falling, because the distributions are excess spread and the NAV is loan prices. Return of capital in a fund's distributions is the accounting sign that cash is being paid out of a shrinking NAV.
- What is Eagle Point Credit's NAV per share?
- AltStreet's review of Eagle Point Credit records the fund's NAV per share at $13.39 at the end of 2021, $9.07 at the end of 2022, $7.00 at September 30, 2025 and $5.70 at the end of 2025. The fund's NAV is the sum of its CLO equity and junior debt marks, so it moves with the loan market and with the amortization of its older positions.
- Does NAV determine what CLO equity trades at?
- Not directly. CLO equity trades in a dealer market and on BWICs at prices set by the buyer's required IRR on projected cash flows, which can sit well above or below NAV. A deal with a negative NAV but a long reinvestment period and a strong manager can trade at a positive price on its expected distributions.
- Which NAV do listed CLO equity funds report?
- Their own: the fair value of every position they hold, marked monthly, divided by shares outstanding. The mark on each CLO equity position is a modeled value, usually a discounted projection of the position's cash flows at a market discount rate, cross-checked against dealer quotes, not a simple sum of loan prices.