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Analysis CLOs
Banks predict record-breaking year ahead
by Robin Armitage
Consensus figures generated from outlook reports by five banks suggest 2025 will be another strong year for CLO issuance. But last year, their estimates were well below the actual numbers
This year the CLO market is on track to surpass the record-breaking issuance levels set in 2021, with over USD 532bn of deals pricing globally so far in 2024. But what does 2025 hold?
It was still a little early for all market forecasts to be in when this issue went to press, but we have gathered the predictions so far for the upcoming year to give a sense of the market consensus.
1: New CLO issuance 2016 to 2025*
Sources for all data: Barclays Research Global Credit Outlook: Riding the yield wave; Bank of America Global Research CLO and NA RMBS Issuance Forecast: 2025 to Trump 2024; Deutsche Bank Research: European CLO Outlook 2025 & US CLO 2025 Outlook; JP Morgan Global Research: CLO 2025 Outlook; KBRA 2025 Structured Credit Sector Outlook: Favorable Currents for Sustained Flow; Moody’s Ratings 2025 Outlook
In short, market participants are predicting more highs for global CLO markets in 2025. In the US, new BSL CLO issuance is predicted to push slightly ahead of 2024, with our consensus figure averaging to USD 167bn. For comparison, USD 155bn worth of US BSL CLOs had already priced by early December, with talk of more deals in the pipeline before the end of the year.
Barclays made the most bearish prediction. It forecast around USD 155bn of new US BSL CLO issuance in 2025. JP Morgan predicted USD 180bn (see chart 2).
Moody’s Ratings, while declining to quote exact numbers, predicted that new US issuance could approach the levels seen in 2024, if spreads on triple A-rated CLO bonds remain around current levels, and M&A and LBO activity increases. Increased loan activity has been identified by most participants as an important driver for 2025.
167
bn
In 2025, US BSL CLO issuance is predicted to beat 2024’s figure
Refinancings and resets in the US BSL market have had a romp in 2024, accounting for USD 238bn of issuance. Next year’s forecasts vary wildly (chart 3). On average, the issuance for refi/resets sits just under USD 200bn, but some outlooks predict only USD 150bn, while Barclays suggested USD 307bn as the “upper bounds of the forecast”. This would require record levels of new issuance and refi/resets.
Bank of America Global Research predicted around USD 150bn of total activity to come from refis and resets, driven “primarily by resets of 2021 vintage CLO deals and remaining 2022-23 vintage deals that have high liability costs”.
Looking at mid-market CLOs, the outlook is also positive. Moody’s believes middle market CLOs will continue to account for a large share of new CLO issuance. In part, this can be attributed to intensifying competition between private credit and the BSL market.
In 2024, new MM CLO issuance has reached USD 37bn, which looks to be on the lower end of predictions for 2025. KBRA has forecast USD 35bn of new middle market pricings, Deutsche Bank plumped for USD 45bn of issuance, while Bank of America had the most bullish prediction at USD 50bn.
2: Forecast US CLO new issuance for 2025 ($bn)
*includes US BSL and US MM
3: Forecast US BSL CLO reset/refi issuance 2025 ($bn)
Optimism in Europe
An average of EUR 47bn has been predicted for new European CLO deals in 2025. Like the US, European M&A and LBO activity is expected by researchers to pick up in the new year and bring fresh loan supply.
Barclays highlighted the potential for new European CLO issuance due to the 128 warehouses open at the end of November 2024. “Warehouses should be able to support up to EUR 51bn of issuance,” it said. Barclays believes managers are prepared for this level of activity.
Deutsche Bank Research predicted that if spreads are maintained at current levels, it could unlock some EUR 40bn in potential reset/refi activity in 2025. Barclays went with a slightly higher number at EUR 42bn, while JP Morgan mentioned EUR 50bn as a possibility. The JP Morgan report claims this figure hinges on a greater number of current CLOs being potentially callable by year-end 2025, along with a number of deals nearing or exiting their reinvestment periods.
4: 2024 predicted vs actual issuance
Last year’s predictions were too downbeat
Last year, Creditflux created a consensus view for CLO market prediction going into 2024.
Most arrangers predicted a bearish year for global CLO issuance, with the main driver to come through new US BSL CLO pricings. This significantly underestimated issuance in both the US and Europe (see chart 4).
The greatest misjudgment came in US resets, where the actual figure was five times that of the estimated average.
