Global Forces on the US CLO Market

Abstract

This article examines the macroeconomic factors that have led the US broadly syndicated loan and collateralized loan obligation (CLO) markets to be the largest in the world, considers how the markets evolved to the current state, and explores some of the current themes facing both markets. European leveraged loans and CLOs are the second largest market, followed by US middle market loans and CLOs. Each of these markets has different challenges facing them, but there are also similarities in structures, market participants, and market forces that can benefit from shared experiences. Finally, there is the potential for a CLO market to cross over to Asia to focus on Asian credit issuance. The US broadly syndicated loan and CLO markets can serve as a benchmark for the future development of global loan and CLO markets. TOPICS: CLOs, CDOs, and other structured credit; global markets; developed markets; emerging markets Key Findings • Growth in the US leveraged loan market has been supported by sustained, but moderate, GDP growth over the past decade, and monetary policy, both domestically and internationally, has encouraged investment in the US. • Prevalent features of the current leveraged loan market include robust secondary market trading and covenant-lite loan structures resulting from evolution of the leveraged loan market and convergence with the high-yield bond market. • US capital markets continue to evolve, with CLOs and private credit providing more sources of liquidity for corporate issuers.