KBRA releases research examining trends across the structured credit landscape, including issuance, spreads, and macro risks. Middle market collateralized loan obligations (CLO) have a record issuance year in sight and are on pace to deliver nearly $23 billion in CLO paper for the full year―activity that would surpass the $22 billion high-water mark from 2021 (the pandemic rebound year). Meanwhile, broadly syndicated loan (BSL) CLOs are grappling with an arbitrage issue that resulted in a year-over-year issuance drop of around 33%. Funding costs for BSL CLO liabilites have risen disproportionate to spreads on leverage loans during the Federal Reserve’s 18-month hiking cycle, squeezing excess interest to their lowest levels in years.

While the Fed recently pushed pause on another increase, its commitment to returning inflation to the 2% objective means that rates will likely remain “higher for longer” at a minimum. This could prolong the arbitrage issue facing the BSL market if liability spreads do not continue to tighten, tempering issuance levels. That said, middle market CLOs have already surpassed their 2022 issuance totals.

In addition to the trends noted above, we discuss the middle market sector and provide a recap of KBRA’s 2023 rating and surveillance activity.

Click here to view the report.

Related Publications

• Recurring Revenue Loan Metrics Dashboard: August 2023 Update
• U.S. CLO Manager Style Comparisons: June 2023 Update
• KBRA Insight on Private Credit: Middle Market Rate Stress―Another 50 Basis Points?
• Private Credit Industry Conference on Direct Lending and Middle Market Finance 2023 Recap
• Structured Credit Trend Watch: The Dust Settles on Q1 2023
• KBRA Update on SVB-Related RRL Structured Credit Exposure
• Private Credit: Recurring Revenue Loans in a Rising Rate Environment

• European CLO Manager Style Comparisons: July 2023 Update
• European Securitisation: Market Returns to Pace

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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