KBRA released research examining trends across the structured credit landscape, including issuance, spreads and macro risks. The market for structured credit and collateralized loan obligations (CLOs) was off to a promising start midway through the first quarter of 2023. Participants digested strong economic data and labor market activity, shrugged off an uptick in defaults from January to February and pushed spreads on CLOs tighter while doubling issuance on a month-over-month basis. For the first two months of the year, the market seemed to be finding its footing in this new environment, slightly outpacing 2022 issuance out of the gate.
While the banking crisis in early March prompted a swift response from central banks to stabilize the sector and stave off full-fledged contagion, its fallout did not completely close the new issue CLO market. However, investors were once again hit with a fresh dose of uncertainty that will likely underpin sentiment and liquid credit volume for the remainder of the first half of 2023. Middle market CLOs appear well-positioned to benefit from the ongoing volatility, as both issuers and investors seek more certainty around execution. Both bank and nonbank direct lenders have sought risk partners to collaborate with to manage and grow their balance sheets. Interest in Europe is also growing in the middle market and direct lending space.
