S&P predicts record US private credit and mid-market CLO issuance in 2025

Demand for private credit loans is likely to continue to outpace supply this year, according to S&P Global Ratings.

Meanwhile, repricing will continue for well-performing loans that exit their non-call period, and issuers are expected to seek flexible loan structures in loan document provisions at the higher end of the direct lending market, such as payment-in-kind and covenant-lite options.

According to the ratings agency’s quarterly analysis of the US private credit and middle-market collateralised loan obligation (CLO) sectors, mid-market CLO issuance has continued to fuel credit estimate growth.

Read more: S&P: Risk profile of private credit funds is changing

A record tally of mid-market CLO issuance last year led to growth in the S&P’s universe of credit-estimated companies.

In the fourth quarter of 2024, 958 credit estimates were issued, bringing the total number of in 2024 to 3,549. Of these, 73 per cent were credit estimates that were refreshed for existing issuers and 27 per cent were credit estimates on new issuers.

The credit rating agency expects another busy year in 2025, with potential for another record volume of mid-market CLOs issued.

Credit estimate downgrades slowed in the fourth quarter of 2024, but challenges persist. The fourth quarter saw a total of 64 credit estimate downgrades, the lowest number since the second quarter of 2023.

Read more: European CLO issuance to double by 2030

However, total aggregate downgrades during the year were 333, which was the highest in any year and eclipsed the 276 downgrades in 2023.

The fourth quarter of 2024 also saw a total of 61 upgrades, bringing the overall total upgrades for the year to 193. In aggregate nearly 13 per cent of credit estimates reviewed during the year were lowered, while more than seven per cent of the credits reviewed were upgraded.

The pace of credit estimate downgrades continues to moderate, and upgrades continue to increase. Metrics for most mid-market CLOs have remained stable over the past several months and look reasonably healthy by historical standards.

However, while the average metrics look good, the agency said there is a significant gap in performance metrics between the best and worst performing mid-market CLOs.

Read more: S&P predicts “relief” for private markets in 2025