Private Credit CLO Growth Accelerates
Private credit CLOs have moved further into the mainstream, with the emergence of new managers in the US and building investor interest.
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The private credit CLO sector continues to develop apace with the emergence of new managers in the US, while investor interest in Europe crystalised around the first deal to launch in the continent, building expectations of further growth to come.
Collateralised by loans from direct lending or private credit firms typically affiliated with the CLO manager, private credit CLOs moved further into the mainstream in the US last year. Formerly a relatively niche product, the growth in private credit CLOs has now seen the term become quite interchangeable with longer established middle market CLOs. While the investment focus on middle market CLOs has been on the type of assets being acquired, private credit CLOs have gained attention through this method of financing. With new private credit funds raising equity, a flurry of new managers and a dramatic drop in spreads to historic lows, expectations are centered on continued activity in the sector in 2025.
The well documented slide in private credit CLO spreads was a standout feature of the capital markets in early 2025, only interrupted by volatility related to the US government’s tariffs policy. In February 2025, private credit CLO spreads moved to the tightest levels since the global financial crisis, before widening out in line with the wider market. Investors seemed to identify greater value during this period of tightening as spreads on private credit CLO narrowed at a faster pace compared with traditional broadly syndicated loan (“BSL”) CLOs. By March 2025 this differential had narrowed to 25bps compared to some 40 bps a year earlier. Deals from Churchill, Ares and Golub Capital emphasised the tightening trend, pricing a succession of private credit CLOs at new benchmarks for Triple-A notes, while Barings launched its first new issue private credit CLO of 2025 in March, sized at US$350 million.
Albeit at a slower pace, private credit CLO activity continued in the more uncertain primary market. Kohlberg & Co launched a debut private credit CLO sized at $402 million, following a $500 billion deal by Brightwood Capital Advisors in the week after the Liberation Day tariff announcement.
Europe Lands First Private Credit CLO
Europe moved into focus after Barings priced the first ever European private credit CLO towards the end of last year. Difficulties building a diversified portfolio had previously hampered activity and while still early days, the success of this €380 million deal may spark more momentum and form an established market for private credit CLOs in Europe. Participants to the Barings deal1 outlined the mechanics behind the structure, with the key challenge of obtaining ratings on each underlying loan in the portfolio, which would usually be unrated. The result was a handpicked portfolio of 50 high quality, diversified, euro-denominated loans from eight different countries. As this is a static deal, trading is only permitted in limited circumstances, and a bucket of European BSL loans offered further diversification in the pool. Parties to the transaction said based on discussions to replicate the structure, further activity should be expected going forward, as sentiment for private credit CLOs turned bullish in Europe in the wake of Barings’ successful deal. These expectations were fulfilled recently. In June 2025, Ares Management priced its first European direct lending CLO, Ares European Direct Lending CLO 1, sized at £305 million, comprised of directly originated and actively managed loans issued by over 50 UK companies.
The huge growth in private credit assets in recent years to around US$1.7 trillion today and forecast to hit US$2.64 trillion by 2029 according to Preqin, has propelled the private credit CLO space, creating more opportunities for managers. Having thrived in the post-financial crisis lending void, private credit corporate assets under management have now surpassed both the BSL market and the US high yield bond market, which both have AUM around US$1.4 trillion, according to the LSTA.2 Discussions at industry conferences have also centred on the intense competition between managers for BSL CLO assets over recent years, and as quality BSL assets have become harder to source, this dynamic has indirectly buoyed issuance of private credit CLOs. The private credit CLO segment, which is now really interchangeable with middle market CLOs, was historically around 10% of the US CLO market. By 2024 it accounted for 21%, according to research by Morgan Stanley.2 The notable trend of major asset managers moving into the retail space is also playing out in private credit. Blackstone recently secured SEC approval for a private credit evergreen fund, targeting individual investors. Apollo Global Management, Ares Management and KKR have all made similar moves, along with Blue Owl Capital, with the launch of its retail focused private credit fund.
Moving into the Mainstream
Investors have grown more knowledgeable as interest has increased in the sector, with private credit CLOs booming as a more mainstream alternative funding source. As the private credit industry continues to originate loans and as private credit and direct lenders take on more financing of previously syndicated loans, CLO issuance should expand further. We have also seen – as happened in in 2023, that the private credit CLO market can grow while broader BSL CLO opportunities were limited by rising interest rates.
Some analysts have highlighted the potential for improved recovery rates on the loans in private credit CLOs, compared to BSL CLOs, with generally tighter credit agreements and covenants. Larger cap private loans are also featuring in the broader private credit CLO market with issuers willing to pay a higher spread with tighter covenants for convenience and certainty of execution. Further convergence in collateral is anticipated going forward with hybrid CLOs expected to feature private credit allowances blended with broadly syndicated loans.
Private Credit CLOs – The Maples Group
From our perspective, we have seen a continual increase in instructions for private credit CLOs for well over the past year. Private credit managers are continuing to expand their business in this area, while many CLO managers traditionally active in BSL CLOs are also expressing interest in private credit CLOs. Anecdotally, private credit has been one of the most resilient asset classes during the period of higher interest rates. With predictions that interest rates are likely to remain high for most of 2025, we anticipate that the appeal of investing in private credit CLOs will continue to grow.
For the Cayman Islands, notwithstanding the recent bond market volatility, activity in the US CLO market continues to set the tone and it has been very much business as usual with US issuance closely tracking 2024’s record levels. It is already well over a year since the Cayman Islands were officially de-listed from the EU AML List, which has provided further recognition of the strength of the jurisdiction’s AML / CFT regime. Working with most of the world’s leading CLO managers in the US and Europe, the Maples Group is renowned globally for the depth of our expertise, innovative structuring capability and comprehensive range of legal, fiduciary and entity management services. Our team of over 125 dedicated legal and fiduciary CLO specialists across our global network bring unparalleled industry knowledge, advising on regulatory developments and how they impact CLOs, as well as warehousing structures and ongoing post-closing CLO issues.
For legal and regulatory disclosures, please visit www.maples.com/legal-notices.
