Collateralized loan obligation (CLO) issuance “blossomed” in the first quarter of 2024, despite elevated interest rates, according to KBRA research. 

Leveraged loan volume and refinancing activity have increased significantly year on year, while structured credit transactions, including broadly syndicated loans and middle market CLO agreements, had a “tremendous” first quarter, with the latter setting a new record, KBRA reported. 

Nearly $50 billion in total issuance volume was recorded through the first quarter for a 40% year-over-year increase. “Market participants have admittedly become more positive on the leveraged finance market compared to a year ago, when turmoil in the regional banking industry introduced increased volatility and uncertainty across the financial system,” KBRA wrote.  

While underlying borrowers perceive lower cash generation because of increasing costs, they have mostly been able to manage a difficult period while maintaining margins.  

U.S. middle market CLO issuance volume in March was $2.5 billion, bringing the year-to-date total to $9.7 billion, a first-quarter record. Middle market CLO volume is up around 40% year on year from 2023, which saw record issuance for the whole year. 

KBRA said they have “visibility” in 12 structured credit deals that may launch in the second quarter, including five U.S. middle market CLOs and credit facilities, one recurring revenue loan (RRL) securitization, one European BSL CLO, and four esoteric securitizations. 

However, default rates have risen. KBRA saw an increase in reported defaults in some of its middle market structured credit portfolios but cautioned that such activity remains “idiosyncratic.”