Investors’ intensifying demand for private credit is fueling growth across different funding structures that invest in these assets—including middle-market collateralized loan obligations (CLOs), business development companies (BDCs), interval and private credit funds, separately managed accounts (SMAs), collateralized fund obligations (CFOs), and other asset-based finance facilities (such as data centers, music royalties, and beyond).
While other credit asset classes have experienced outflows alongside the rapid escalation in interest rates, investors have increased their private credit allocations—reshuffling their exposures due in part to the attractiveness of these primarily floating-rate assets in an environment of still-high rates.
We believe the proportion of middle-market CLO issuance is likely to grow as the investor base continues to expand and direct lenders strategically seek out these structures for funding. S&P Global Ratings provides ratings on more than 200 middle-market CLO transactions and more than 2,800 credit estimates on middle-market companies. While this issuance is centralized in the U.S., we expect the European market to expand moving forward—especially considering the tremendous amount of capital waiting to be deployed with limited investment opportunities. At the same time, we increasingly see private credit fund proposals that include credit tranching for some capital structures or feeder funds, making them more comparable to CLOs.
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