The Big Idea

CLO returns, risk, manager performance, new issue and loan flows

| August 8, 2025

This material is a Marketing Communication and does not constitute Independent Investment Research.

CLO debt continues to deliver steady returns ranging from 6% in ‘AAA’ over the last 12 months to 12% in ‘BB’. Spreads have left about half the deals approaching their first call date with at least some incentive to refinance, and credit metrics across the market look steady. Quality managers continue to top the performance of the loan market index, and the primary market keeps rolling at the fastest pace in the last five years. The outstanding balance of leveraged loans slipped a bit lately but is still up nearly $74 billion this year.

RETURNS AND RV

A routine month for returns with ‘AAA’ CLOs up 56 bp in Jul, ‘AA’ up 66 bp, ‘A’ up 69 bp, ‘BBB’ up 80 bp and ‘BB’ up 111 bp

Note: Returns through 7/31/25. Data shows current value as a percentage of starting value.
Source: Palmer Square, Bloomberg, Santander US Capital Markets

‘AAA’ debt through Jul stands out for delivering the most return for each unit of risk, loans match ‘BBB’ and top ‘BB’ in efficiency

Note: Based on returns 6/30/24-7/31/25.
Source: Palmer Square, Bloomberg, Santander US Capital Markets

Average outstanding ‘AAA’ spreads tighten by 5 bp in Jul, ‘AA’ by 6 bp, ‘A’ and ‘BBB’ by 7 bp and ‘BBB’ by 3 bp

Note: Spreads to SOFR through 7/31/25 for the average class outstanding. May differ from new issue spreads.
Source: Palmer Square, Bloomberg, Santander US Capital Markets

Spreads end Jul tight to their 1Y range and very tight to longer horizons

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.

CLOs tighten in line with corporate debt and end Jul moderately tight to the 1Y range and very tight below ‘AAA’ to longer horizons

Note: The widest percentile rank is 100, the median is 50 and the tightest is 0. Data show DM to SOFR.
Source: ICE BofA Corporate Indices, Santander US Capital Markets.

Spreads in new issue broadly hold steady from Jun through Jul, but dispersion across deals drops dramatically

Note: based on 18-20 deal observations. Month-to-month changes in spreads may reflect a changing mix of managers and deal structures.
Source: Santander US Capital Markets.

Secondary tightens in Jul with new issue steady, widening the spread gap

Note: NI DMs reflect markets throughout the month and can reflect deals priced weeks before, secondary DMs reflect markets at the end of the month. Spreads do not afford a same-point-in-time comparison.
Source: Santander US Capital Markets

The middle market new issue spread curve tightens noticeably

Note: based on 1-3 deal observation. Month-to-month changes in spreads may reflect a changing mix of managers and structures.
Source: Palmer Square, Bloomberg, Santander US Capital Markets.

New middle market CLOs narrow the gap to new BSL

Source: Santander US Capital Markets.

REFI AND CREDIT RISK

Refi risk holds steady: Of 273 CLOs with six months or less to first call, the share with margins at or above the NI ‘AAA’ DM stays around 50%

Source: Santander US Capital Markets.

Credit: The median deal junior OC cushion slips through Jul by 2 bp

Source: INTEX, Santander US Capital Markets.

Credit: Portfolio loan spreads drift roughly 1 bp lower

Source: INTEX, Santander US Capital Markets.

Credit: The median WARF across deals drifts sideways Jun-to-Jul

Source: INTEX, Santander US Capital Markets.

Credit: The median diversity score edges a little higher

Source: INTEX, Santander US Capital Markets.

The median weighted average life of portfolio loans drops in Jul by 0.01 years

Source: INTEX, Santander US Capital Markets.

MANAGER PERFORMANCE

Quality portfolios beat the risk-adjusted return on the Morningstar/LSTA loan index by 13 bp through Jul and top speculative peers by 9 bp

Note: Performance for the three monthly reporting dates before Jul 20, 2025, 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

Sculptor, LCM, Bardin Hill, ICG and Sycamore Tree lead the Top 25 producers of excess return for the three reporting periods ending in Jul

Note: See note for table above.
Source: INTEX, Santander US Capital Markets.

Find detailed CLO manager analysis at US Portfolio Strategy.

PRIMARY FLOWS

YTD issuance in BSL and MM hits $302B through Jul, well above any other year in the last five

Source: Bloomberg, Santander US Capital Markets

LOAN MARKETS

Gross loan issuance tops $72B in Jul, matching Jun

Source: PitchBook | LCD Leveraged Loan Data US, Santander US Capital Markets

Outstanding par balance of the leveraged loan index slips $1.6B in Jul, still up $73.7B YTD and up 7.2% YoY

Source: PitchBook | LCD US Leveraged Loan Index Factsheet, Santander US Capital Markets

Rolling 90-day yields on new ‘B’ loans drops 63 bp through Jul bp as ‘BB’ slips 1 bp

Note: Data shows 90-day rolling yield.
Source: PitchBook | LCD, Santander US Capital Markets

Special thanks to Sophia Cui for key data analysis.

Steven Abrahams
steven.abrahams@santander.us
1 (646) 776-7864

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