KBRA released a report examining trends across the structured credit landscape, including issuance, spreads and document features. Despite increased costs, continued aggressive policy action, geopolitical instability and widening spreads, structured credit transactions and CLOs have pushed forward with robust issuance so far in 2022. Strong demand for floating rate products has been met with a broader menu of structures. While overall leveraged loan volume has lagged on a year-over-year basis, volatility in the secondary market has presented a ripe opportunity for yield and par pick-up which has led to historical leveraged loan trading volume.
Fundamental indicators — including an increase in loan defaults — have signaled a cycle shift from expansion to downturn and, with it, a recent slowdown in issuance and shifting investor preferences. Increasingly, capital has poured into the private credit and direct lending space, which has become a $1 trillion-plus market. Against the current economic backdrop, this market has enticed investors with protective loan covenants, strong lender/borrower relationships and high risk-adjusted returns. In Europe, the primary market has been brought to a virtual standstill as new issue has struggled to keep up with volatility caused by persistent inflation expectations and disruptions in the energy market.
