This year has seen a record $184.7 billion issuance of bonds backed by buyout loans, marking the third annual record since 2018, according to Bloomberg data. This surpasses the $183.8 billion benchmark set in 2021 and the $130.4 billion record of 2018. The surge is propelled by investor demand and redemptions limiting net supply, leading to tighter risk premiums on collateralized loan obligations (CLOs) and lower costs for construction. John Kerschner of Janus Henderson Group noted the high demand for CLOs amid shallow projected Fed rate cuts. Deutsche Bank highlighted tighter spreads as a core driver of this year’s issuance. AAA CLO debt risk premiums narrowed significantly over the year, driven by high redemptions, expected to reach up to $150 billion, according to Deutsche Bank. A notable observation by Morgan Stanley showed a temporary negative net issuance, but the market rebounded to $15 billion net issuance. October hit a record $55 billion gross CLO debt issuance, boosted by resets and refinancings. Analysts project further growth, anticipating $200-215 billion issuance in 2025, driven by increased leveraged buyouts and M&A activity. Nevertheless, macroeconomic uncertainties and potential geopolitical tensions could pose challenges. JPMorgan foresees $150 billion in new supply next year, with minimal market size growth as older CLOs wind down. Despite potential headwinds, demand is expected to remain strong, keeping issuance on pace.
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