The CLO Investor Podcast #30, Shiloh Bates, 2025 CLO Recap
Jan 27, 2026
A concise 2025 CLO market recap covering record issuance and massive refinancings. Discussion of strong CLO debt returns and surprising BB performance. Examination of why CLO equity lagged despite low defaults and how valuation pressure raised required returns. Comparison of in-court versus out-of-court restructurings and private credit measurement issues. Notes on reasons for cautious optimism heading into 2026.
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Record CLO Issuance Versus Mixed Returns
- CLO new issuance hit $200 billion and refinancings/resets added $320 billion, both record levels for 2025.
- Strong CLO debt returns (AAA 5.6%, BB ~9%) contrasted with weak equity returns amid declining SOFR and spread compression.
Realized Loan Losses Exceeded Underwriting Assumptions
- CLO equity underwriters assumed ~60 bps annual loan losses but realized losses were about 140 bps in 2025 due to 2.8% defaults and ~50% recoveries.
- That loss gap more than doubled typical reserves and pressured equity returns across the market.
LMEs Drove Most Default Losses
- ~60% of loan default activity happened via out-of-court liability management exercises (LMEs), not Chapter 11 filings.
- For CLO equity any restructuring that reduces contractual interest or principal is an economic loss regardless of being in-court or out-of-court.