Octus on Credit: Innovations abound in CLO Land after market brushes off tariff scare

The CLO market has reawakened from its post-tariff slump, with a healthy primary pipeline emerging in recent weeks. While CLO tranches initially lagged the recovery seen in the loan market, a tightening bias has now emerged. The latest Sound Point offering in Europe guides triple-As at 132-134 bps, while in the U.S., Oak Hill is guiding at 127-129 bps. Oak Hill has reclaimed its market leadership after pricing the year’s tightest triple-A at 110 bps back in February.

This marks a sharp turnaround from just a month ago, when certain U.S. CLOs placed their senior notes above 160 bps and the European primary market ground to a halt. However, as the market recovers, leveraged loan triple-C downgrades—including credits such as Peraton and Cision—have emerged as a major headwind for managers.

Beyond the mainstream market, CLO technology is being reimagined in innovative ways. Octus has highlighted several potential innovations including deals backed by municipal and emerging markets credit. The asset class is expanding geographically as well, with the first manager establishing operations in Finland. The strong demand for CLO products continues to encourage issuers to think creatively, demonstrating the market’s resilience despite trade-induced setbacks.