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Portfolio Analytics Wrap: Just 11 US Reinvesting BSL CLOs Failed Overcollateralization Tests in 2026
Overcollateralization, or OC, test compliance across U.S. broadly syndicated CLOs has remained broadly healthy in 2026 to date.
Among 1,795 U.S. reinvesting BSL CLOs in Octus’ Structured Finance Insights CLO data, 11 deals recorded at least one OC test failure in 2026, representing 0.61% of the universe. Eight deals were still failing at their most recent trustee reporting period, and three had cured.
The CLOs that failed their OC tests this year include three deals managed by Brigade Capital Management (Battalion CLOs XI, XIV and XXI), one managed by Columbia Management (Cent 27), one managed by LCM Asset Management (LCM CLO 36), one managed by Nassau Global Credit (Nassau 2020-I) and five managed by Fortress Investment Group (Fortress BSL CLOs XII, XIII, XIV, XVI and XVII).
All 2026 year-to-date OC test failures occurred at the Class D and Class E levels, with all 11 deals tripping Class E and six of them also tripping Class D.
The majority of the OC test breaches happened during the software sector loan selloff in February. Since then, four deals have seen their deficits deepen further, while the remaining seven have recorded improving OC cushions, three of which have cured and returned to compliance as of their latest trustee reporting period.
The 11 deals were mainly concentrated in older vintages, with five from the 2021 vintage, two from the 2022 vintage, and one each from 2020, 2019, 2018 and 2017. All three recovered deals came from the 2020 and 2021 vintages, while every pre-2020 failing deal remains in breach.
Seven of the 11 deals had been reset or refinanced at least once, while four remain in their original issuance structure. Notably, the 2017-vintage deal (Battalion XI) and the 2019-vintage deal (Battalion XIV) each recorded their first OC test failure within six months of being refinanced in the fourth quarter of 2025.
Octus’ Structured Finance Insights compared portfolio metrics between U.S. reinvesting BSL CLOs in OC test compliance and those that failed, and found consistently higher credit risk in the noncompliant group.
The eight still-failing deals contain around 10.47% triple-C rated assets in their portfolios on average, 0.9% higher than the recovered group’s 9.57% and 4.8% higher than compliant deals.
Noncompliant deals are generally overweight in consumer discretionary, materials, consumer staples, and utilities, while underweight in information technology, industrials, and healthcare, when compared with compliant deals.
Portfolio weighted average loan price and weighted average spread data exhibit similar trends. The 11 deals that experienced OC test failures show lower instrument prices and wider spreads, as lower-rated loans are typically compensated with wider spreads for their higher credit risk.
The underlying issuer financial metrics of the noncompliant deals show consistent weakness versus compliant deals. Weighted average interest coverage of underlying obligors was 3.02x among still-failing deals, against 3.34x at compliant deals and 3.09x at recovered deals. Interest coverage including capital expenditures fell to 2.31x at failing deals versus 2.64x of the compliant group.
Weighted average net leverage across noncompliant deal portfolios is 5.17x, 0.29x higher than the compliant deal average of 4.88x. First lien net leverage exhibits a roughly equal gap of 0.3x between the two groups.
On the growth side, weighted average revenue growth and cash EBITDA growth of noncompliant deal portfolios stands at 6.6% and 11.2%, respectively, which are 0.9% and 4.7% slower than compliant portfolios. However, noncompliant deals’ pro forma EBITDA growth ran slightly higher at 11.16%.
The liquidity profile of noncompliant deals’ obligors is also consistently weaker than compliant deals, with debt-to-repayment capacity exhibiting the largest gap at 0.88x.
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