Egan-Jones: CLO Issuance Slows While Credit Quality Remains Steady
A review by Egan-Jones indicates a significant slowdown in new collateralized loan obligation (CLO) issuance during August, while the credit quality of existing deals has held firm.
New collateralized loan obligation (CLO) issuance in the U.S. fell 21% by count and 24% by volume in August compared to the prior year, according to an analysis by Egan-Jones. The firm reported 98 CLO deals totaling $40.5 billion were issued in August, down from 124 deals valued at $53.5 billion in August 2025.
The slowdown is attributed to compressed returns for CLO equity investors, the most junior tier of the capital structure, rather than a deterioration in the underlying loans. Egan-Jones' own metrics show a slight decrease in the weighted average rating score across the deals it rated, indicating a lower estimated default risk. The proportion of assets rated CCC+ or lower remained stable or slightly declined.
Tight loan spreads and a limited supply of broadly syndicated loans have squeezed returns for CLO equity. Broader credit conditions remained accommodating over the same period, with the ICE BofA US High Yield Index option-adjusted spread averaging 270 basis points in August, near a three-year low.
Egan-Jones' analysis distinguishes the slowdown in new deal formation from any weakening in the collateral backing existing CLOs. The firm suggests the current environment reflects more the economics of assembling new transactions than any degradation in the condition of deals already in the market. Egan-Jones utilizes its own default probability models, which it describes as more conservative than industry standards.