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News
Market predicts bumper 2025 after record November
by Tom Davidson & Lisa Lee
November turned out to be another crazy month for the CLO market, especially in the US. Although private credit CLOs had a slight pause, US BSL CLO issuance hit USD 48bn, making it the busiest month this year.
There was plenty of action from resets and refinancings, but the month also marked a welcome increase in new issuance, with USD 21bn of new US BSL CLOs pricing.
US managers believe the surging activity will carry through into next year. “It’s been a very busy year. You have a record-setting year for reworks, and a close to record-setting year for new deals,” said Gretchen Lam, CEO of Octagon Credit. “2025 will similarly be very, very busy because the technical dynamics that we saw, the drivers of issuance, will continue into 2025.”
US BSL CLO issuance volumes ($bn)
Boris Okuliar, co-head of global liquid credit at Ares, was also feeling positive. “We are seeing growing confidence in credit market capacity and issuance for 2025, leading to more inquiry from banks and financial sponsors for new M&A in particular.
“This indicates that Q1 will see a return of more buoyant M&A activity, barring any geopolitical shocks, which should set the tone for a higher level of activity across 2025 than has been seen in the last two to three years.”
That increase in loan supply will be a relief for CLO managers and investors alike, after a year that saw a lot of activity but limited net growth.
Lam said: “There has been a lot of running on the spot for investors. As a manager of loans, you have seen 77% of the BSL market refi or reprice, which is the highest in seven years. For CLO investors, the net supply of triple As has been a negative USD 8bn.”
She believes that, although liabilities have tightened significantly over the year, there’s room for further tightening, especially for senior tranches.
“Yields, while they have compressed throughout the year, are still wide to the historical average,” she said. “There has been negative net supply of triple As driven by amortisations and calls, and demand has been driven by ETFs, where triple As have seen USD 12bn in inflows. This has come on top of strong demand from US banks and insurance firms, as well as from other geographies, including Europe and the Middle East.”
Although the frantic activity may feel exhausting, it also holds a promise for a more mainstream future. As Leland Hart, CIO of Warwick’s performing credit business, put it: “The acceptance of the CLO market by a broader group of institutional investors and retail investors cannot be overstated.”
