The Credit Edge by Bloomberg Intelligence Carlyle Flags ‘High Teens’ Middle-Market CLO Gains
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Feb 27, 2025 Lauren Basmadjian is the Global Head of Liquid Credit at Carlyle, overseeing a vast $192 billion credit platform. In this conversation, she reveals that middle-market CLOs are offering impressive mid-to-high teens IRRs, overshadowing traditional syndicated loans. Basmadjian discusses the risks from liability management exercises, the convergence of private and public debt, and opportunities in the European leveraged loan market. She also emphasizes the rising demand for quality loans and the impact of interest rates on borrower behavior, shedding light on evolving market dynamics.
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Rise of LMEs
- Liability management exercises (LMEs), where debt takes a haircut before equity, are becoming more common, impacting BSL market quality.
- This practice dilutes the traditional hierarchy of losses, potentially creating uncertainty and volatility in loan pricing.
Navigating LMEs
- Size and expertise matter in navigating LMEs, where different outcomes are possible for the same loan.
- Build a capable team to negotiate these transactions and protect value in a changing market.
CLO Market Outlook
- CLO issuance and resets remain high, driven by demand for floating-rate assets and tight spreads.
- Market volatility may impact issuance in 2025, but spreads are expected to remain tight.