OC Test (Over-Collateralisation Test)

Formula: OC Ratio = Performing Asset Par / Outstanding Note Balance. Failure redirects excess interest proceeds to repay senior notes (turbo). CLO Class A/B OC test minimum typically 121–128%.

IC Test (Interest Coverage Test)

Formula: IC Ratio = Available Interest Income / Required Interest Payments. Failure traps cash before equity distributions. Typical CLO IC minimum ~120%.

Sequential Pay

A principal waterfall in which all available principal is applied to the most senior outstanding tranche until fully repaid before any proceeds flow to junior tranches. Standard during amortisation and post-trigger periods.

Turbo Redemption

Accelerated repayment of senior notes triggered by OC or IC test failure, funded by diverting excess spread. Conditional turbo: applies only while the test is failing. Unconditional turbo: always redirects; common in European CLOs.