Today’s changing world offers a mix of increasing rates, inflation, volatility, and exogenous shocks, and “some businesses are just not built for such a world”, noted Ella Gude, Co-Head of Real Return and Head of Fixed Income at Newton Asset Management, in her keynote presentation at The Creditflux CLO Symposium in London, held 20–21 April.

At the event, now in its 18^th year, Gude explained how consumers and governments have been stretched post-Covid, meaning the usual (consumer discretionary) demand buffers and levers have either vanished or are much diminished. Taking up post-global financial crisis (GFC) market slack, where regulatory restrictions on lending had held back banks, the gap was filled by private credit. The private credit industry took particularly large exposures in what now look to be downturn-prone sectors such as software.¹ Through challenges in these more vulnerable classes, for example, one can imagine “risks may migrate from banks to private credit and structured lenders, but the risks are not so large as to be systemic”, she said.

“How will structured finance adapt to a more demanding environment, how will risk be re-priced, and where are growth areas emerging?” asked Evis Progonati, Managing Editor of Debtwire ABS, who added that “headline ping-pong” is depressing, but offset by positive trends such as increased investments in capital expenditure, defence, and supply chain resiliency (which means moving from ‘just-in-time’ to ‘just-in-case’).

Likewise, savvy portfolio managers are adjusting from a carry-driven to a volatility-driven market by going short duration, ensuring they have some spread and yield cushion, and by owning commodities. And managers do have credits to select from: new ABS issuances have increased – most notably in Austria and Spain – and in commercial mortgage-backed securities (CMBS) and automotive ABS (following the resolution in March of the auto financing class action lawsuit² ), as Creditflux’s data revealed.

However, the outlook for leveraged buyouts (LBOs) is “not too optimistic at the moment”, according to Creditflux reporter Lisa Fu, which she explained was for two reasons:

• The market’s efforts to digest the 2021 and 2022 vintages, where underwriting theses are being upended – and where the bulk of the broadly-syndicated loan (BSL) market’s 2028 ‘maturity wall’ is comprised. These particular assets will be monetised – either at a much lower rate than expected and/or much longer time horizon than their private equity (PE) sponsors envisioned, and
• A pile-up of anticipated LBO loans that await processing by the market. These are unsold assets sitting with PE LBO general partner sponsors that total US$3.7trn across 32,000 companies. Traditional exit routes – such as selling to other sponsors or strategic buyers, an IPO, or a dividend recap – are increasingly problematic, with average PE holding periods up from five to seven years, and one-third of loans now trading above par. PE sponsors urgently need to monetise these assets and want to dash to market to raise funds whenever a gap in the clouds appears (the market for the most part is wide open to those who do). But prices being up in the air means PE sponsors are uncertain of their costs, thus diminishing M&A activity and causing the current dearth of supply and difficulties in getting a new issue CLO out. For CLO managers ‘asset starvation’ is an unfortunate feature of today’s market, but volumes – once they do get released – will be strong, and indeed warehouses remain open.

Other panel sessions revealed how efforts to tackle these blockages range from ‘sticking plasters’ such as liability management exercises (LMEs), through to more ‘upstream’, permanent ways to free-up capital – for example reforming securitisation regulations and encouraging significant risk transfers (SRTs).

“CLOs have been placed front-and-centre of the EU’s new Savings and Investments Union agenda”
Chris McGarry, Partner, Global Structured Finance and Private Capital, Mayer Brown

An LME is an out-of-court restructuring of corporate liabilities, typically when new money is needed but unavailable in more ‘vanilla’ ways. Used by public and PE-owned companies alike, LMEs enjoyed a brief burst of popularity to address immediate post-Covid challenges, initially in retail (still making up one-third of all LMEs) but now more broadly-based, given the ‘higher for longer’ rates environment. LMEs enable maturity extension, covenant relaxation, de-leveraging/discount capture, and/or reduction of cash spent on debt servicing and can be used both for opportunistic and defensive reasons. However, panellists questioned whether, if money could be raised normally, anyone would opt for an LME given their cost and often litigious nature.

Regulators across the EU and UK have become much more comfortable with securitisation, realising that the current post-GFC regulation (such as Solvency UK and Solvency II for the EU) must be refreshed and relaxed.³ The supply constraints posed by Europe’s smaller securitisation market currently forces insurers into bonds, which makes CLOs’ floating rates and collateral attractive. As Chris McGarry, Global Structured Finance and Private Capital partner at law firm Mayer Brown observed, “one tailwind for the sector is that CLOs have been placed front-and-centre of the EU’s new Savings and Investments Union agenda”.⁴

Related regulatory efforts include encouraging further use of SRTs, a highly bespoke regulatory capital management tool for banks that enables arbitrage between the bank’s economic and regulatory capital. (CLOs are very much an investment product, enabling arbitrage between the loans and bonds issued.) The European Central Bank has encouraged SRTs to both manage risk and increase the velocity of capital, and SRTs remain largely a Europe and primary market-based tool. The Bank for International Settlements (BIS) acknowledges that “SRT investors have become an important source of capital relief for banks’ credit risk”.⁵ It takes two to tango and, regulation aside, it is investors’ yearning for yield that propelled SRTs from niche to mainstream.

This hunger extends to the US, where to date only five of its 4,500 banks have used SRTs. BIS’ current Basel III Endgame proposals will alter how large US banks manage regulatory capital,⁶ opening opportunities for SRT investors in that vast market. Panellists discussed how that far from using their information asymmetry (gained from lending to valued clients over several decades and credit cycles) to offload undesirable assets, banks are in fact keen to share such data with investors, enabling better risk assessment and evidencing a partnership aspect to SRTs that benefits all parties.

The combined results should increase both the volume of capital available (particularly from insurance-sector investors) and the flexibility of how this is deployed to corporates. “A clear convergence between traditional securitisation and private credit is emerging”, noted Debtwire’s Progonati.

Without data centres – which do far more than just back-up consumer holiday pictures and videos – the modern world would collapse. Quite how they are best delivered and financed is less obvious, presenting a smörgåsbord of options for investors.

Data centres differ significantly by model: they can be large language models or ‘core cloud’; location (roomy and remote versus small and central); and power source (renewable energy source or not). Each is accompanied by obsolescence risks and concentration risk regarding the type of tenant. Funding vehicles also vary, encompassing development or project finance, CMBS, business development companies and/or CLOs, depending on where the data centre is in its (cash flow) lifecycle, as well as which banking team leads the transaction. 

However, returns are healthy, reported panellists: power supply constraints in the locations dubbed ‘FLAPD’ (Frankfurt, London, Amsterdam, Paris, and Dublin) are driving increased competition for sites in Milan, Madrid, and Warsaw. Annual growth even in this sub-sector is 20–30%.⁷

Another capital-hungry sector is artificial intelligence (AI). At the conference its potential to harm existing CLO collateral regularly emerged as a cause for concern. Panellists commented on how it offers both opportunities and threats to both the CLO industry itself and corporates. AI could be used to model and write memos, extending beyond its current use as a tool to augment a CLO manager’s analysis. Likewise, whether AI is additive (and supercharges productivity) or destructive to corporates might depend on whether management chooses to use it to replace or augment functions within core or only non-core parts of its business.

Winners and losers will emerge over time and the market’s sell-off of software stocks in February, triggered by fears of AI destroying their value⁸ might have been over-hasty and blunt. However, one need not wait until any corporate incumbent’s revenue collapses for its enterprise valuation to suffer – margin compression can already destroy value, wreaking havoc for CLO investments long before any LME takes place.

The ‘customary resilience’ of CLO structures – together with their experienced managers – will allay fears and attract investors to this unique ‘safe haven’ in an otherwise jittery market, agreed panellists (a continuing theme in our flow CLO updates). And with inflation once more ‘out of the box’, the floating rate nature of CLOs (and their relative value) has already prompted a further shift into the asset class.

The liquidity of CLOs, through their secondary and ETF markets, also helps. The former helps investors gain equity-like returns with a credit instrument, to ‘play with duration’, and to invest in a fully formed portfolio. The latter boosts liquidity, especially in the US (Europe’s CLO ETF market is one-seventh of its size), while also validating CLOs as a mainstream asset.

“Underlying assets have been resilient”
Brendan Condon, Head of European CLO Structuring, Deutsche Bank

Our earlier flow analyses noted the influx of new CLO managers entering the European market, whether from the US or CLO-adjacent spaces. New entrants, both those entering organically or through acquisition, might need fewer assets and managers to launch than their US peers, but they also will have to compete harder given the current dearth of supply.

“Performance is important: debut managers stick to more balanced and defensive portfolio construction, but unannounced ‘style drift’ by existing managers can negatively impact performance and future fundraising” noted Paul Roos, Partner and Head of Structured Credit at Whitebox Advisors. With around 70 managers already in Europe (and an anticipated 10 to 20 new ones over the coming year), some consolidation is likely. But, he added, today’s challenging environment allows great managers – both seasoned and new – to shine. Leveraged loans might not be in plentiful supply, but buyers remain discerning and create a ‘credit-pickers’ market’.

Overall, “underlying assets have been resilient”, said Brendan Condon, Head of European CLO Structuring at Deutsche Bank. Collateral performance in the private credit/mid-market (PC/MM) space has held up well too. “There have been no big blow-ups within CLOs, although this could be due to the usual delays in quarterly reporting and more generally due to the market going through ‘a price-discovery phase’,” added Kieran Page, Head of Structured Credit & Mortgages at Legal & General Institutional Retirement. 

Given credit committee concerns, some banks are reportedly focusing on existing borrowers. Such lender-borrower familiarity is helpful, but already commonplace in PC/MM, where more direct dialogue helps underwriting, reporting and, occasionally, work-outs, reported panellists. Lender caution and adaptation of legal structures and documentation aside, funding for the PC/MM space is available but more limited – and over the past five years, BSL has disappointed compared to PC/MM.

Panellists concluded that the CLO market has been so resilient due to four key factors:

1. The calibre of CLOs’ underlying collateral: in 25 years of returns for European LBO loans, only 2008 and 2022 had negative performances.
2. The calibre of CLO managers: although after such a historically benign environment, there is evidence of more variance in European manager results. This will lead to some ‘tiering’, or further delineation of CLO managers according to their experience, assets managed, and performance – and thus their fees and spreads commanded when pricing.
3. ‘Captives’ (whereby an investor signs up for several deals with one particular CLO manager) provide a pipeline of demand. Investors clearly favour the access to deals captives provide, their returns, and other features, otherwise there would not be new ones appearing constantly.
4. The overall structure of CLOs: they are ‘like a bank but an inverse one, with locked-in funding for 12 years up-front’. Specifically, their structure enables investors to choose their ideal instrument: for some, buying senior secured debt issued by well-performing corporates at just shy of par in the mid-90s is a ‘screaming buy’ that generates attractive income. For others preferring the other of the capital stack, buying at a deep discount and capturing the pull-to-par can also appeal.

Given these four factors, the CLO success story should continue, and weather the current turbulence.

The Creditflux CLO Symposium 2026 took place from 20–21 April 2026 in London

For further information on how to access Deutsche Bank’s collateralised loan obligation services please visit our solutions page here

Sources

¹ See $300 Billion Evaporated. The SaaS -Pocalypse Has Begun at forbes.com
² See After the Supreme Court Judgement – What’s Next for Motor Finance Claims in the UK? | Akin at akingump.com
³ See Recalibrating the securitisation framework in the European Union at europarl.europa.eu
⁴ See Savings and investments union at finance.ec.europa.eu
⁵ See Project Agora: exploring tokenisation of cross-border payments at bis.org
⁶ See Principles for the sound management of third-party risk at bis.org
⁷ See European Data Centres Figures Q4 2025 | CBRE at cbre.com
⁸ See Software sell-off over AI fears hits global stock markets at theguardian.com