Private credit CLOs in the US could overtake BSL CLOs
Private credit collateralised loan obligations (CLOs) could surpass broadly syndicated loan (BSL) CLOs in the US market as investors prioritise yields, industry insiders have predicted.
According to recent data from the Loan Syndications and Trading Association and Bank of America, by the end of December 2024 the US private credit CLO market had grown by 16 per cent since the previous year with $36bn (£29.37bn) of new issuances.
Read more: Janus Henderson CLO ETF becomes largest in market with $20bn of assets
By the end of last year, private credit CLOs represented 19 per cent of the total new issue CLO volume in the US market.
Amid central bank rate cuts, some industry experts have suggested that yield-seeking investors could show a preference for private credit CLOs over BSL issuances in the year ahead.
However, Brian Bejile, co-founder and chief executive of syndicated loan analytics platform Octaura, has warned that as private credit CLOs become more popular and take share away from the BSL market, managers may face calls for enhanced transparency.
Read more: S&P predicts record US private credit and mid-market CLO issuance in 2025
“The level of disclosure is definitely something that the investors in these deals focus on as a potential risk,” says Bejjile.
“In the BSL CLO market, there’s great disclosure. Oftentimes in middle market and private credit CLOs, the access to the underlying data may not be as good. So that does limit the investors who can buy because they want to know what they are buying.
“The more investors feel like they can understand the risk of what they’re investing in, the more comfortable they are, and the easier it’s going to be to sell a transaction and do the next one and the next one.”
The main difference between a BSL CLO and a private credit CLO is the composition of the portfolio of loans. BSL CLOs are purchased from the market and can be traded on the secondary market. By contrast, private credit CLOs consist of middle market or private credit debt, with loans originated by the manager.
Read more: European CLO issuance to double by 2030
This makes BSL CLOs more liquid than private credit CLOs, but they might also be more vulnerable to market volatility.
Recent macro-economic uncertainty has driven demand for private credit CLOs on both sides of the Atlantic. While the US private credit CLO market had a banner year in 2024, the European market also saw the launch of its first ever private credit CLO, which was issued by Barings in November.
