KBRA released its 2025 Structured Credit Sector Outlook, which discusses structured credit issuance and themes for transactions and leveraged loans in 2024, as well as tailwinds and headwinds for issuance and performance next year.
The outlook for structured credit transactions is brighter relative to recent years, given fresh rate cuts from the Federal Reserve, which should offer underlying borrowers some relief from the elevated interest rate environment that defined much of 2024. A more accommodative policy should also provide a more constructive backdrop for leveraged loan formation and structured credit performance, particularly among issuers of collateralized loan obligations (CLO).
CLO arbitrage will likely remain the major catalyst for deal formation and could improve if spreads continue to tighten. Opportunities are seen in optimizing structures as demand for floating rate assets remains robust. The continued expansion of private credit has provided not only more collateral for middle market CLO issuance, but also a complementary outlet for public credit markets. While geopolitical instability and macroeconomic uncertainty persists, the proliferation of a variety of broadly syndicated and middle market offerings should give investors a diverse range of opportunities for yield and risk management going into 2025.
In the report, KBRA highlights its 2025 issuance forecast for U.S. structured credit and European broadly syndicated loan (BSL) CLOs. The former includes BSL and MM CLOs, as well as securitizations of recurring revenue loans. The report also highlights recent KBRA research within the structured credit sector.
