European CLO Market 2025: Record Issuance, Regulatory Reform, and What to Expect in 2026

Record-Breaking Primary Market Activity in 2025

2025 was a record-breaking year for the European CLO market, with approximately €60 billion in new issuance compared to €49 billion in 2024 and a significant surge in refinancing activity. CLO managers capitalised on favourable spread conditions, with resets increasing substantially compared to 2024.

New investor participation broadened further, with notable interest from Asia with European CLOs becoming an increasingly attractive market for investors. The market welcomed many first-time issuers, demonstrating the continued appeal of the CLO structure to a broadening range of asset managers. Average deal sizes often exceeded the market norm of €400 million, reflecting both scale and investor confidence in the structure.

Deal Structures and Market Dynamics

Mid-market CLOs continue as a notable feature; we are exploring these products with several established managers. This evolution demonstrates the market’s adaptability and appetite for innovation, as managers diversify offerings and attract new investor bases.

Investment banks continue to provide Class A loans to fund European CLOs, with multiple Class A loans being implemented in certain transactions. This trend reflects strong lender appetite for top-tier tranches and an increasingly competitive environment among arranging banks.

Key Regulatory Developments Affecting European CLOs

Securitisation Regulation Reforms

Following the European Commission’s publication of its legislative package proposing amendments to the EU Securitisation Regulation and the Capital Requirements Regulation in June 2025, both co-legislators have now adopted their respective positions.

The Council formally adopted its position on 19 December 2025, largely aligning with the Commission’s proposals, with certain exceptions. Importantly for CLOs, the Council removed the expanded definition of “public” securitisation proposed by the Commission, which would have captured transactions listed on EU venues for technical reasons.

On 11 December 2025, the draft report of the European Parliament’s Committee on Economic and Monetary Affairs (“ECON”) was published, with approximately 500 proposed amendments submitted by MEPs. The principal areas of divergence between the co-legislators for trilogue negotiations include:

• private securitisation reporting architecture, where the Council supports repository reporting for all securitisations while the Parliament proposes reporting only to national competent authorities for private securitisations;
• third-country securitisation due diligence, where the Council favours a “substantive equivalence” standard while the Parliament prefers to retain the requirement for full ESMA template compliance;
• investor sanctions, which the Council rejects entirely while the Parliament proposes capped sanctions with anti-duplication measures; and
• the Capital Requirements Regulation (“CRR”) p-factor and investor treatment, where the Council retains the distinction between originators and investors while the Parliament would extend relief to all investors and reduce the p-factor further to 0.3.

ECON is expected to negotiate the Securitisation Regulation provisions in the coming weeks, followed by the CRR provisions. A final ECON vote on the Parliament’s negotiating position is scheduled for early May 2026.

Trilogue negotiations between the European Commission, Council and Parliament are expected to commence in the second half of 2026, likely towards the end of spring or early summer. Formal adoption and publication of the amending Regulations is not expected until late 2026 or early 2027.

Capital Requirements Directive VI

Article 21 of the Capital Requirements Directive VI (“CRD VI”) prohibits the provision of cross-border “Core Banking Services” into the EU by non-EU credit institutions. Core Banking Services comprise deposit taking, lending (which is broadly defined and includes lending to non-consumers), and the provision of guarantees and commitments.

The deadline for Member State transposition of CRD VI passed on 10 January 2026, with the Article 21c reforms due to take full effect from 11 January 2027. Despite the passing of the transposition deadline, we are still awaiting the publication of transposing regulations in key EU member states, including Ireland. As a result, there is some uncertainty as to whether there will be general alignment with the provisions of the Directive or whether member states such as Ireland will seek to introduce clarifications on, for example, the exemptions that may be applied.

The net effect is that third-country undertakings will be required to establish a third-country branch in an EU Member State and seek authorisation in order to provide Core Banking Services.

Certain exemptions from the requirement to establish a branch are available:

Exemptions from the Branch Requirement

• a grandfathering exemption for pre-existing contracts (including loan agreements) entered into on or before 11 July 2026 to preserve the customer’s acquired rights;
• a reverse solicitation exemption where an EU customer approaches the lender on its own exclusive initiative (although this is expected to be narrowly interpreted);
• an inter-bank exemption for provision of Core Banking Services to credit institutions;
• an intra-group exemption for services to undertakings within the same group; and
• a MiFID exemption for activities that are accommodating ancillary services to MiFID investment services.

Non-EU credit institutions may also consider transferring their lending activities to non-credit institution entities, such as SPVs. Another possibility arises from the introduction of a pan-European loan origination funds regime under the revised Alternative Investment Fund Managers Directive (enacted under Directive (EU) 2024/927 (“AIFMD II”)), which enables AIFMs to manage alternative investment funds that originate loans. This new framework may be helpful in the context of the Capital Requirements Directive, as such funds are not within scope.

Sustainability Omnibus Directive and CSRD Changes

The Sustainability Omnibus Directive has been published in the Official Journal, amending the Corporate Sustainability Reporting Directive (“CSRD”). Member States will have one year after the entry into force of the directive to transpose its provisions into national legislation. The directive significantly reduces the scope of the CSRD and reporting obligations for in-scope companies.

Key changes under the amended directive include:

• social and environmental reporting will only be required for EU companies employing on average over 1,000 employees and with a net annual turnover of over €450 million;
• the net turnover threshold has also been increased for non-EU companies to €450 million generated in the EU for sustainability reporting; and
• smaller companies with under 1,000 employees are protected from shifting responsibility for reporting, as the updated rules allow them to refuse reporting information beyond what is set out in the voluntary standards.

The amending directive also provides for a transition exemption for companies that had to start reporting from financial year 2024 (the ‘wave one’ companies) falling out of scope for 2025 and 2026. It also includes an exemption for certain EU and non-EU financial holding companies from consolidated reporting. We estimate that few (if any) CLOs will be captured in the amendments to CSRD.

European Commission Consultation: Listing Act and Prospectus Regulation

The European Commission has launched a consultation on delegated acts under the Listing Act and Prospectus Regulation concerning alleviating prospectus requirements and supervisory convergence. The proposed delegated regulation would shorten prospectuses, set out a standardised format and sequence for the information included in them, and harmonise and clarify the scrutiny and approval of prospectuses and related timelines.

ESMA Technical Standards on European Green Bonds

On 15 October 2025, ESMA published its Final Report on Technical Standards under the European Green Bonds Regulation. The technical standards provide further detail on the implementation of the EuGB framework, which establishes a voluntary standard for bonds marketed as environmentally sustainable.

European CLO Market Outlook for 2026

In our view, the European CLO market is well placed to consolidate its strong 2025 performance in 2026. Market participants should anticipate continued innovation in deal structures as the industry adapts to shifting commercial, economic and regulatory dynamics in 2026.

The lack of availability of leveraged loans as collateral is unlikely to improve materially in 2026 and, in general, we expect investors will become more focused on credit quality as the year progresses.

The continued divergence in interest rates between Europe and the US is expected to increase the attractiveness of the European market to investors. We expect this will result in continuing investor demand for European CLOs and also continue to drive additional US CLO managers to establish platforms in Europe.

Furthermore, the European Commission’s proposed changes to Solvency II for insurance companies would see a reduction in regulatory capital requirements for insurers investing in CLOs. If approved, this will come into effect in early 2027, further increasing the buyer base for the asset class.

Get in Touch

Should you have any questions regarding recent developments in European CLOs, warehouses, or prospective refinancing and reset transactions, please feel free to get in touch. We would be delighted to discuss how these market trends may affect your specific transactions and objectives.