By the Numbers

CLO returns soften, but leveraged finance keeps expanding

| November 14, 2025

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.

News about First Brands, Tricolor and other credits helped widen CLO spreads last month and took some momentum out of CLO returns. ‘BB’ returns took an especially hard hit. CLOs also widened to their corporate cousins, improving relative value especially at lower ratings. Refi risk has declined, credit shows a touch of softening. But primary flows in CLOs and growth in leveraged loans shows leveraged finance continues to expand.

The highlights through October:

  • RETURNS AND RV: Secondary spreads widen, ‘BB’ returns hit hard
  • REFI AND CREDIT RISK: Refi risk falls, junior OC cushions slip
  • MANAGERS: Quality portfolios top the index by 12 bp, peers by 14 bp
  • PRIMARY FLOWS: YTD $460B, up $66B over last year
  • LOAN MARKETS: Net loan supply up $4.1B in Oct, up $95B YTD

RETURNS AND RV

Wider spreads take some heat off CLO returns in Oct with ‘BB’ hit especially hard

Note: Returns through 10/31/25.
Source: Palmer Square, Bloomberg, Santander US Capital Markets

‘AAA’ CLO debt remains the most efficient by far, delivering 12.3% returns for every unit of risk while other debt posts between 3% and 8%

Note: Based on returns 10/31//24-10/31/25.
Source: Palmer Square, Bloomberg, Santander US Capital Markets

Fresh nerves about credit widen spreads in Oct with ‘AAA’ out by 4 bp, ‘AA’ by 8 bp, ‘A’ by 7 bp, ‘BBB’ by 11 bp and ‘BB’ by 30 bp

Note: Spreads to SOFR through 10/31/25 for the average class outstanding. May differ from new issue spreads.
Source: Palmer Square, Bloomberg, Santander US Capital Markets

Spreads end Oct notably wider to the 1Y and 3Y range but still 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 underperform corporate debt, widening especially at ‘A’ and lower ratings and looking like fair value at the 1Y horizon

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.

Despite wider secondary spreads, median BSL NI tightens in Oct by 3 bp in ‘AAA’, flat in ‘AA’, by 5 bp in ‘A’, 7 bp in ‘BBB’, wider by 3 bp in ‘BB’

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

Secondary BSL trades tight to NI in ‘AAA’ and ‘AA’, wide in ‘A’ and below

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

Middle market new issue spreads follow BSL NI tighter in Oct

Note: based on 2-5 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 issue middle market debt narrows the gap to BSL

Source: Santander US Capital Markets.

REFI AND CREDIT RISK

Of 382 CLOs with six months or less to first call, 43% show margins at or above the Oct median NI ‘AAA’ DM

Source: Santander US Capital Markets.

Credit: The median deal junior OC cushion declines 6 bp in Oct to 459 bp

Source: INTEX, Santander US Capital Markets.

Credit: The median portfolio loan spread drops 4 bp in Oct to 312

Source: INTEX, Santander US Capital Markets.

Credit: The median WARF across deals drops Sep-to-Oct by 1 point to 2757

Source: INTEX, Santander US Capital Markets.

Credit: The median diversity score is unchanged Sep-to-Oct at 84

Source: INTEX, Santander US Capital Markets.

The weighted average life of portfolio loans extends slightly in Oct at all points of the distribution

Source: INTEX, Santander US Capital Markets.

MANAGER PERFORMANCE

Quality portfolios beat the risk-adjusted return on the Morningstar/LSTA loan index by 12 bp through Oct and top speculative peers by 14 bp

Note: Performance for the three monthly reporting dates before Oct 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, HPS, Golub, CVC and Ares lead the Top 25 producers of alpha for the three months ending in Oct

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 $460B through Oct, up $66B from last year led by refis and resets

Source: Bloomberg, Santander US Capital Markets

LOAN MARKETS

Gross loan issuance drops from a torrid $93B in Sep to $52B in Oct

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

Outstanding par balance of the leveraged loan index rises $4.1B in Oct, bringing YTD supply up $95B or 6.7%

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

Rolling 90-day yields on new ‘B’ loans rises 26 bp through Oct with ‘BB’ yields down 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.

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

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