#USA #New York #Egan-Jones #Credit Quality #CLO Market

Egan-Jones Report on CLO Issuance

In a recent report, Egan-Jones Ratings Co. analyzed the dynamics surrounding collateralized loan obligations (CLOs), revealing an unexpected trend in issuance. While the credit conditions appear favorable, the new issuance for CLOs in July saw a tepid recovery.

In July 2026, the CLO market exhibited a modest rise, recording 111 deals that totaled approximately $43.2 billion, an increase from June’s 101 deals. However, this volume still significantly lagged behind the peak observed in November 2024, which reached $54.6 billion. This raises questions about the disparity between current market conditions and the actual issuance volumes.

According to Egan-Jones, the constricted CLO issuance may be attributed to prevailing concerns regarding credit quality within the market. Notably, the ICE BofA US High Yield option-adjusted spread, which investors use to gauge the extra yield demanded for lower-rated corporate debt, hovered around an annual low of 284 basis points. For context, this is a significant drop from the high of 461 basis points recorded in April 2025, underscoring a shift in investor sentiment towards risk.

The report’s analysis included data from 1,622 rated CLO deals as of July 2026. A slightly improved weighted average rating score suggests that while the asset quality has held up well, there remains a cautious approach among investors due to the potential risks. The percentage of assets rated CCC+ or lower remained consistent or saw minor improvements, which, according to Egan-Jones, indicates a stable yet cautious market.

Interestingly, the firm noted that both asset and tranche coupons experienced a decline, although this reduction has slowed in recent months. This could imply that while loan allocations are decreasing, the market is not witnessing a significant shift toward yielding more profitable investments for issuers and investors.

Egan-Jones emphasized a more optimistic perspective regarding CLO credit quality compared to other credit rating agencies, highlighting a notable contrast in assessment criteria. The senior tranche subordination—a protective layer for senior holders—averaged 35.5%, while mezzanine tranches stood at 13.5%. Such figures illustrate the structure of risk management within the current market.

The report posits that while financing conditions remain robust and indicators of portfolio metrics are sound, actual supply is not keeping pace. This perceived disconnect between high-quality financing conditions and continuing subdued issuance illustrates a critical tension in the CLO landscape.

Looking ahead, it will be essential for industry players to monitor these trends closely. As investors weigh their options amid prevailing credit concerns, the future trajectory of CLO issuance may hinge on broader economic trends and shifts in risk appetite within the credit markets. Egan-Jones anticipates that continued assessments of credit quality will play a pivotal role in shaping the landscape for CLOs, especially as market conditions evolve.

In conclusion, the CLO market remains at a crossroads, with Egan-Jones providing valuable insights that underline both the challenges and opportunities present. Stakeholders will need to navigate these complexities to effectively leverage the favorable credit environment while also addressing the emerging concerns over credit quality.