Demand for personal credit score loans is prone to proceed to outpace provide this yr, in line with S&P International Scores.
In the meantime, repricing will proceed for well-performing loans that exit their non-call interval, and issuers are anticipated to hunt versatile mortgage constructions in mortgage doc provisions on the greater finish of the direct lending market, corresponding to payment-in-kind and covenant-lite choices.
Based on the scores company’s quarterly evaluation of the US non-public credit score and middle-market collateralised mortgage obligation (CLO) sectors, mid-market CLO issuance has continued to gasoline credit score estimate development.
Learn extra: S&P: Danger profile of personal credit score funds is altering
A report tally of mid-market CLO issuance final yr led to development within the S&P’s universe of credit-estimated corporations.
Within the fourth quarter of 2024, 958 credit score estimates have been issued, bringing the entire variety of in 2024 to three,549. Of those, 73 per cent have been credit score estimates that have been refreshed for current issuers and 27 per cent have been credit score estimates on new issuers.
The credit standing company expects one other busy yr in 2025, with potential for one more report quantity of mid-market CLOs issued.
Credit score estimate downgrades slowed within the fourth quarter of 2024, however challenges persist. The fourth quarter noticed a complete of 64 credit score estimate downgrades, the bottom quantity because the second quarter of 2023.
Learn extra: European CLO issuance to double by 2030
Nevertheless, whole combination downgrades throughout the yr have been 333, which was the best in any yr and eclipsed the 276 downgrades in 2023.
The fourth quarter of 2024 additionally noticed a complete of 61 upgrades, bringing the general whole upgrades for the yr to 193. In combination almost 13 per cent of credit score estimates reviewed throughout the yr have been lowered, whereas greater than seven per cent of the credit reviewed have been upgraded.
The tempo of credit score estimate downgrades continues to average, and upgrades proceed to extend. Metrics for many mid-market CLOs have remained secure over the previous a number of months and look fairly wholesome by historic requirements.
Nevertheless, whereas the typical metrics look good, the company mentioned there’s a vital hole in efficiency metrics between the most effective and worst performing mid-market CLOs.
Learn extra: S&P predicts “aid” for personal markets in 2025