Page 13 - MTIA Summer 2022 Market Brief

CLOs in the Spotlight

The market demonstrated resilience and growth throughout 2023. In the first
quarter of 2024, the U.S. CLO market witnessed historically high ssuance levels,
signaling robust demand. Meanwhile, the European market experienced a slower
pace in comparison. However, uncertainty lingers regarding the sustainability of
high CLO issuance volumes.

Sources of CLO Activity

CLO managers are increasingly focusing on refinancings and resets to extend
deal life and adapt to lower cost structures as AAA spreads have significantly
compressed. The availability of primary loan supply remains crucial in supporting
new CLO origination, with a potential boost from increased mergers and
acquisitions (M&A) activity.

Our conversations with stakeholders suggest that private credit will likely capture
a larger share of the CLO loan market, potentially reaching 30% compared
to the historical range of 15-25%. This shift helps drive more CLO issuance if
additional syndicated loan supply from M&A activity increases. However, regional
differences in private debt growth are evident in Europe, with the UK boasting
a substantial market while the Nordics experience less penetration due to
competitive bank lending.

CLOs are Impacted by a Mix of Negative and Positive Factors

NEGATIVE POSITIVE

• Macroeconomic Factors • Investor Demand
• Market Volatility • Increased Loan Supply
• Credit Quality and from Private Credit
Downgrades • Innovation and Technology
• Spread Compression • New Structures
• Refinancing Challenges • Market Maturation

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