Moody’s: Middle-market CLO issuance on the rise
Moody’s expects to see substantial growth in middle market collateralised loan obligation (CLO) issuance going into 2025.
In its 2025 structured finance outlook, the ratings agency said the intensifying competition between private credit and the banks’ broadly syndicated loan (BSL) market will mean middle-market CLOs, often advanced by the private credit market, will continue to account for a large share of new US CLO issuance.
Moody’s quantified middle market CLO issuance at $24bn (£19bn) through to September 2024, and reported it had accounted for approximately 17 per cent of new CLO issuance this year. This was down from a peak of 23 per cent ($27bn) in 2023 but is still considerably higher than previous years.
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The Moody’s outlook went on to say that despite CLOs making up a greater proportion of US CLO issuance, European private credit CLOs will remain a niche subsegment of the CLO market and continue to face several credit challenges relative to BSL CLOs.
The firm said those challenges include highly concentrated and largely unrated portfolios, higher expected losses, currency issues, low diversity scores, requirements for ratings from two rating agencies, and credit estimate fees for unrated underlying assets.
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Elsewhere, in its European RMBS and ABS outlook, Moody’s foresaw a conservative growth trajectory for private credit within the context of securitisation issuance.
“While private credit lending volume – including asset-based financing – is growing, it will not significantly add to European securitisation issuance in the short term,” the firm said.
It added that European policymakers are trying to grow the securitisation market, as they seek funding for the Capital Markets Union project and the transition to a green and digital economy.
This is unlikely to materialise in 2025, according to Moody’s, but the agency said it signals a “paradigm shift” that will build confidence in the market over time, attract new participants and ultimately benefit market liquidity and funding costs.
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