2025 Structured Credit Sector Outlook: Favorable Currents for Sustained Flow

The outlook for structured credit transactions is brighter relative to recent years, given fresh rate cuts from the Federal Reserve, which should offer underlying borrowers some relief from the elevated interest rate environment that defined much of 2024. A more accommodative policy should also provide a more constructive backdrop for leveraged loan formation and structured credit performance, particularly among issuers of collateralized loan obligations (CLO). CLO arbitrage will likely remain the major catalyst for deal formation and could improve if spreads continue to tighten. Opportunities are seen in optimizing structures as demand for floating rate assets remains robust. The continued expansion of private credit has provided not only more collateral for middle market CLO issuance, but also a complementary outlet for public credit markets. Looking through the rearview, 2024 was a bounce-back year for broadly syndicated loan (BSL) CLO new issuance, and was another record year for…