Industry Outlook: 2026 and Beyond

Updated: Apr 28

April NAVs should be up around 5%.

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Big story - Are CLO Equity Captive Funds good for the leverage loan and CLO markets?
70% of CLO equity for 2025 new CLO issuance deals came from Captive CLO Equity Funds.
Historically, when loan spreads dropped too much, new CLO issuance slowed down until loan spreads widened out.
Debatable if current low loan spreads are due to Captive Equity Funds.
No middle ground, panelist with Captive Funds love them. 3rd party CLO equity managers hate them.
Defaults are still limited 2% for CLOs. Recoveries bifurcated - true bankruptcy defaults recoveries are low. Distressed exchange defaults have high recoveries.
CLO equity secondary market is not active. A few trades are occurring with 20% expected IRRs.
Lots of talk about AI softwate loans. Most panelists believe the scare is way over done but there are worries about the ability to refinance these loans in 2028/29. About 50% software loans mature in 28/29.
A number of CLO managers were overweight BBs loans at the beginning of year. They were able to sell BB at par and buy stronger software names at $0.90, building par and spread during late Feb. and March.
AAA CLO spreads expected to tighten a bit this year, from 125ish to 115bps - 120bps.
Muted CLO issuance - expected total 2026 issuance lower than last year about $400B compared to over $600B last year.
More to come.

Despite volatility, CLOs remain:

CLOs are evolving—not declining.

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