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CLOs already have a long history, but as we reach the middle of this decade, they may enter a new phase of innovation and maturity. December 2024's Opal CLO Summit was buzzing with activity and ideas, from panel discussions to meetings to informal conversations. It was much more vibrant than even 2023's Summit. One panel highlighted that CLOs now fund around 70% of the $1.4 trillion in leveraged loans outstanding.

Here are the CLO trends we heard, which are likely to set the tone for the next 12-18 months.

1. 2025: A year of growth as interest rates ease.

If 2024 was the year of resets and refis (a significant slice of activity for the year), 2025 could easily exceed it, especially as interest rates continue to ease. For that optimism to materialize, CLO stakeholders are paying close attention to the implications of an incoming administration in the U.S. We heard a mix of pessimism and optimism. The main questions are how fiscal policy, trade, and the regulatory climate may affect credit markets.

If inflation begins to climb again or liquidity tightens, consequences on CLOs could be harsh. These factors could add stress to the borrowers in underlying loans, affecting the level of credit risk. They could also lower the appetite for new issuance and depress secondary market activity for existing CLOs.

2. Distress and default rates have peaked.

In fact, they never reached people's most pessimistic expectations. Many Opal attendees viewed this as evidence for the underlying strength of CLOs as a viable financial instrument even under tough credit conditions.

At the same time, credit quality seems to be improving, helping lift optimism. Spreads have declined and narrowed. Corporate borrowers have seen increases in top-line revenue and EBITDA. Rating downgrades have stabilized instead of continuing to rise.

3. The CLO space has AI on their minds like many other industries.

For assets, if AI is the beginning of a fourth Industrial Revolution, innovation will replace population growth and shifts in their role of economic growth drivers. That shift could change valuation and risk calculations. But the market doesn't seem ready to rethink familiar math.

For managing and servicing CLOs, AI remains just an appealing acronym. In practice, the industry contends with pervasive unstructured, non-standard data and deal and loan-level complexity across all CLO market participants. The goal is to focus on simplicity, consistency, and flexibility to achieve an interoperable plug-and-play market—not AI but just "regular I." There's a lot of realism around exploring AI, but few illusions about the actual impact.

The hesitancy around AI reflects a fundamental fact—the CLO market's documentation framework still resembles a complex organism instead of a well-oiled machine. Legal documents should be able to bend without breaking. But the core challenge remains asset-level disclosure that is accurate while protecting sensitive data. It's a delicate balancing act that requires both technical precision and relationship finesse, beyond the scope of what generative AI can achieve.

4. Avenues for access by retail investors, such as CLO ETFs, are opening up quickly.

The entry of retail investors creates more demand, which in turn may mean more incentives for originating CLOs. These may include structural adjustments in tranches and payouts to better accommodate holdings by retail vehicles.

5. Private credit isn't going to retreat.

Even if regulatory changes (such as Basel III reforms, Risk Retention Requirements, or Liquidity Coverage Ratio (LCR) Rules) give banks more room for risk on their balance sheets, private lenders have too much money and activity to shift course.

Our perspective

"Sentiment ranged from qualified optimism (the majority) to 'it depends.' But if you take the long-term view, CLOs continue to show resilience in the face of wider geopolitical, macroeconomic risks, the impacts of a pandemic, and aftershocks in interest rates and inflation. The general 2025 optimism at Opal seems pretty well justified and is reflected in the activity we've been seeing for new warehouse mandates as trustee."  —Josh Stowell, Managing Director – Business Development1Disclosure number, please reference additional details in the Disclosures section at the bottom of this page.

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This article is intended to provide general information only and is not intended to provide specific investment, legal, tax, or accounting advice for any individual. Before acting on any information included in this article you should consult with your professional adviser or attorney. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, or the opinions of professionals in other business areas of Wilmington Trust or M&T Bank. M&T Bank and Wilmington Trust have established information barriers between their various business groups.

Please reach out to discuss how we can support you with private loan transactions in this evolving market.

Disclosures:

  1. Not all services are available through every domestic and international affiliate or in all jurisdictions. Services are available only to institutional clients, (i.e. Eligible Counterparties or Professional Clients as defined by applicable regulations), and not for Retail clients.

    This article is intended to provide general information only and is not intended to provide specific investment, legal, tax, or accounting advice for any individual. Before acting on any information included in this article you should consult with your professional adviser or attorney. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, or the opinions of professionals in other business areas of Wilmington Trust or M&T Bank. M&T Bank and Wilmington Trust have established information barriers between their various business groups.

  • © 2025 M&T Bank and its affiliates and subsidiaries. All rights reserved.
  • Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation including, but not limited to, Manufacturers & Traders Trust Company (M&T Bank), Wilmington Trust Company (WTC) operating in Delaware only, Wilmington Trust, N.A. (WTNA), Wilmington Trust Investment Advisors, Inc. (WTIA), Wilmington Funds Management Corporation (WFMC), Wilmington Trust Asset Management, LLC (WTAM), and Wilmington Trust Investment Management, LLC (WTIM). Such services include trustee, custodial, agency, investment management, and other services. International corporate and institutional services are offered through M&T Bank Corporation’s international subsidiaries. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank. Member, FDIC. 
  • M&T Bank Corporation’s European subsidiaries (Wilmington Trust (UK) Limited, Wilmington Trust (London) Limited, Wilmington Trust SP Services (London) Limited, Wilmington Trust SP Services (Dublin) Limited, Wilmington Trust SP Services (Frankfurt) GmbH and Wilmington Trust SAS) provide international corporate and institutional services.
  • WTIA, WFMC, WTAM, and WTIM are investment advisors registered with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply any level of skill or training. Additional Information about WTIA, WFMC, WTAM, and WTIM is also available on the SEC's website at adviserinfo.sec.gov. 
  • Private Banking is the marketing name for an offering of M&T Bank deposit and loan products and services.
  • M&T Bank  Equal Housing Lender. Bank NMLS #381076. Member FDIC. 
  • Investment and Insurance Products   • Are NOT Deposits  • Are NOT FDIC Insured  • Are NOT Insured By Any Federal Government Agency  • Have NO Bank Guarantee  • May Go Down In Value  
  • Investing involves risks and you may incur a profit or a loss. Past performance cannot guarantee future results. This material is provided for informational purposes only and is not intended as an offer or solicitation for the sale of any security or service. It is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. There is no assurance that any investment, financial or estate planning strategy will be successful.

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