By the Numbers
CLO Snapshot through December
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Tighter spreads on new CLO debt have raised the refinancing risk on existing positions substantially over just the last month. The median new ‘AAA’ class that came to market in December priced at a spread of 129 bp over 3-month SOFR. Of the outstanding CLOs with six months or less to the end of their non-call period, 69% now have some ‘AAA’ refinancing incentive. While refi risk has gone up, most standard CLO credit metrics look benign. Tighter spreads and benign credit have helped CLO returns continue to accrue smoothly, with ‘AAA’ classes the most efficient.
The highlights:
- RETURNS AND RV: CLO returns rise smoothly in Dec, ‘AAA’ most efficient
- REFI AND CREDIT RISK: Tighter spreads lift refi risk, most credit stats unchanged
- MANAGERS: Quality managers top index by 25 bp, speculative peers by 11 bp
- PRIMARY FLOWS: BSL and middle market deals top 2021
- LOAN MARKETS: Loan issuance falls through Dec, yields steady
RETURNS AND RV
CLOs add to returns through Dec across ‘AAA’ (+50 bp), ‘AA’ (+54 bp), ‘A’ (+61 bp), ‘BBB’ (+74 bp) and ‘BB’ (+131 bp)
Note: Returns through 12/31/24. Data shows current value as a percentage of starting value.
Source: Palmer Square, Bloomberg, Santander US Capital Markets
‘AAA’ remains most efficient based on return per unit risk followed by ‘A’, ‘AA’ and ‘BBB’; ‘BB’ and leveraged loans remain least efficient
Note: Based on returns 1/1/24-12/231/24.
Source: Palmer Square, Bloomberg, Santander US Capital Markets
Spreads on outstanding CLOs finish mixed through Dec: ‘AAA’ wider by 1 bp, ‘AA’ by 1 bp, ‘A’ tighter by 5 bp, ‘BBB’ tighter by 4 bp and ‘BB’ by 17 bp
Note: Spreads to SOFR through 10/31/24 for the average class outstanding. May differ from new issue spreads.
Source: Palmer Square, Bloomberg, Santander US Capital Markets
Every rating class closes Dec at tight levels across horizons from 1Y to 10Y, with ‘AAA’ and ‘AA’ slightly wide to other classes
Note: The widest percentile rank is 100, the median is 50 and the tightest is 0. Data show DM to SOFR.
Source: Palmer Square, Bloomberg, Santander US Capital Markets.
Most rating classes close Dec tight to corporate debt based on the last 3Y of spreads, with ‘AA’ and ‘A’ slightly wider than others using 1Y spreads
Source: ICE BofA Corporate Indices, Santander US Capital Markets.
Median BSL new issue spreads tighten month-over-month across ratings in Dec, with dispersion narrowing
Note: based on 17-19 deal observations. Month-to-month changes in spreads may reflect a changing mix of managers.
Source: Santander US Capital Markets.
In contrast to BSL, median new issue middle market spreads widen slightly through Dec on very limited volume
Note: based on 1-3 deal observations. Month-to-month changes in spreads may reflect a changing mix of managers.
Source: Palmer Square, Bloomberg, Santander US Capital Markets.
The spread between BSL and middle market widens across ratings month-over-month
Source: Santander US Capital Markets.
REFI AND CREDIT RISK
Refi risk: Of the 216 outstanding CLOs with six months or less to the end of NC, 148 or 69% have margins at or above the NI ‘AAA’ level
Source: Santander US Capital Markets.
Credit: Junior OC cushions mixed month-over-month in Dec—the 90th ptile down 2 bp, the median unchanged and the 10th ptile up 18 bp
Source: INTEX, Santander US Capital Markets.
Credit: CLO portfolio loan spreads tighten month-over-month in Dec: the 90th ptile by 5 bp, the median by 4 bp, the 10th ptile by 4 bp
Source: INTEX, Santander US Capital Markets.
Credit: Distribution of WARF across deals drifts lower Nov-to-Dec
Source: INTEX, Santander US Capital Markets.
Credit: Diversity scores finish Dec largely unchanged
Source: INTEX, Santander US Capital Markets.
The median weighted average life of loans finishes Dec unchanged
Source: INTEX, Santander US Capital Markets.
MANAGER PERFORMANCE
Quality portfolios beat the risk-adjusted return on the Morningstar/LSTA loan index by 25 bp through Dec and speculative peers by 14 bp
Note: Performance for the three monthly reporting dates before Dec 20, 2024, for managers with five or more deals issued since January 1, 2011, and tracked by Santander US Capital Markets. Performance attribution starts with calculated total return on the leveraged loan portfolio held in each CLO for the 3-month reporting period ending on the indicated date. CLOs, even with a single manager platform, may vary in reporting period. The analysis matches performance in each period to performance over the identical period in the Morningstar/LSTA Leveraged Loan Index. Where a deal has at least 18 months of performance history since pricing and no apparent errors in cash flow data, the analysis calculates a deal beta. The deal beta is multiplied by the index return to predict deal return attributable to broad market performance. Where no beta can be calculated, the analysis uses the average beta across manager deals weighted by the average deal principal balance over time. Any difference between performance attributes to beta and actual performance is attributed to manager alpha.
Source: INTEX, Markit, Santander US Capital Markets LLC
ICG, AEGON, Invesco, Anchorage and Octagon lead the Top 25 producers of excess return for the three reporting periods ending in Dec
Note: See note for table above. Source: INTEX, Santander US Capital Markets.
Find detailed CLO manager analysis at US Portfolio Strategy.
PRIMARY FLOWS
NI BSL volume in 2024 tops 2021 entirely on the volume of refi/reset deals, NI MM volume in 2024 also tops 2021
Source: Bloomberg, Santander US Capital Markets
LOAN MARKETS
Gross loan issuance finishes at $654B
Source: PitchBook | LCD, Santander US Capital Markets
Rolling yields on new ‘B’ loans drop month-over-month in Dec by 1 bp, ‘BB’ rise 19 bp
Note: Data shows 90-day rolling yield. Source: PitchBook | LCD, Santander US Capital Markets
Special thanks to Sophia Cui for key data analysis.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
