Moody’s expects to see substantial progress in center market collateralised mortgage obligation (CLO) issuance going into 2025.
In its 2025 structured finance outlook, the rankings company stated the intensifying competitors between personal credit score and the banks’ broadly syndicated mortgage (BSL) market will imply middle-market CLOs, typically superior by the personal credit score market, will proceed to account for a big share of recent US CLO issuance.
Moody’s quantified center market CLO issuance at $24bn (£19bn) by to September 2024, and reported it had accounted for about 17 per cent of recent CLO issuance this yr. This was down from a peak of 23 per cent ($27bn) in 2023 however continues to be significantly larger than earlier years.
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The Moody’s outlook went on to say that regardless of CLOs making up a higher proportion of US CLO issuance, European personal credit score CLOs will stay a distinct segment subsegment of the CLO market and proceed to face a number of credit score challenges relative to BSL CLOs.
The agency stated these challenges embrace extremely concentrated and largely unrated portfolios, larger anticipated losses, forex points, low variety scores, necessities for rankings from two ranking businesses, and credit score estimate charges for unrated underlying property.
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Elsewhere, in its European RMBS and ABS outlook, Moody’s foresaw a conservative progress trajectory for personal credit score inside the context of securitisation issuance.
“Whereas personal credit score lending quantity – together with asset-based financing – is rising, it won’t considerably add to European securitisation issuance within the quick time period,” the agency stated.
It added that European policymakers try to develop the securitisation market, as they search funding for the Capital Markets Union undertaking and the transition to a inexperienced and digital economic system.
That is unlikely to materialise in 2025, in line with Moody’s, however the company stated it indicators a “paradigm shift” that can construct confidence out there over time, entice new members and in the end profit market liquidity and funding prices.
Learn extra: AXA IM Alts closes two CLOs with €754.5m in whole