Leveraged Finance & CLO Essentials

Private Credit & Middle Market CLOs

Private Credit And Middle-Market CLO Quarterly: Waiting For The Sun
((Q1 2025))

The pace of credit estimate downgrades continues to moderate, and upgrades continue to increase, causing the credit estimate downgrade-to-upgrade ratio to continue to improve. Upgrades of credit estimates nearly matched downgrades in fourth-quarter 2024. As a result, metrics for most MM CLOs have remained stable over the past several months and look reasonably healthy by historical standards. The average reinvesting MM CLO ‘CCC’ (or ‘ccc’) basket was just over 14.7% at year end, compared to 16.43% back in July and a typical MM CLO ‘CCC’ threshold of 17.5%. Exposure to non-performing assets remains modest at 0.66% compared to 0.43% a year ago, and the average MM CLO junior O/C test cushion deteriorated only modestly during the year, to a 6.2% cushion versus 6.76% a year ago. However, these are averages, and there is a significant gap in performance metrics between the best and worst performing MM CLOs.

U.S. CLOs & Leverage Finance

U.S. BSL CLO And Leveraged Finance Quarterly: Credit Fundamentals Mostly Sunny, But Some Clouds Linger (Q1 2025)

U.S. collateralized loan obligation (CLO) issuance in 2024 set records, and we expect another busy year in 2025 amidst robust investor demand for floating-rate assets in an uncertain interest-rate environment. Including both broadly loan (BSL) CLOs and middle-market CLOs, we forecast $205 billion of U.S. CLO new issuance during the year, modestly above the 2024 total of $201.95 billion. We have a stable outlook for CLO ratings performance in 2025 based on strengthening credit fundamentals of corporate loan issuers and a relatively benign outlook for loan defaults (with the caveat that we could see an increase in 'SD's as stressed issuers engage in LMTs). Most CLO rating downgrades that do happen should be on junior tranches of pre-COVID-19 CLOs. We're keeping an eye on declining weighted average recovery rate (WARR) and weighted average spread (WAS) metrics, which could put pressure on some BSL CLO ratings.

Credit Metrics

U.S. CLO Insights Dashboard

Europe CLOs & Leverage Finance

CLO Pulse Q2 2024: Movers And Shakers In The Top 50 Obligors In European CLOs' Portfolios

European collateral loan obligations (CLOs) typically benefit from portfolio diversification, from both an issuer and a sector perspective.

In this publication, we examine the aggregate asset quality held by European CLOs, observed through key credit metrics and consolidated by S&P Global Ratings' CLO industry sectors. Specifically, this edition of sector average metrics for European CLO assets focuses on loans issued by 634 corporate issuers, which represents over 95% of the assets under management (AUM) held in reinvesting European CLOs rated by S&P Global Ratings as reported up to March 31, 2024, in the second quarter of 2024.

Relevant Insights

Explore more of our CLO & Leveraged Finance content:

• – Global Leveraged Finance Handbook
– Leveraged Finance: Adding Up: EBITDA Addback Study Shows Moderate Improvement In Earnings Projection Accuracy