Collateralized Loan Obligation (CLO) Market Size, Share, Growth, and Industry Analysis, By Type (Consulting Service and Solution), By Application (Large Enterprises and Small and Mid-sized Enterprises (SMEs)) and Regional Forecast to 2033

COLLATERALIZED LOAN OBLIGATION (CLO) MARKET REPORT OVERVIEW

The global Collateralized Loan Obligation (CLO) market size expanded rapidly in 2022 and is projected to grow substantially by 2028, exhibiting a prodigious CAGR during the forecast period.

With a CLO, a portfolio of below investment grade—also termed leveraged—loans is collected and arranged into several tranches which are sold to investors. The risk and the return increase as you go from senior tranches (more secure, less profitable) to equity tranches (less safe, but with a higher return).

GLOBAL CRISES IMPACTING COLLATERALIZED LOAN OBLIGATION (CLO) MARKET
COVID-19 IMPACT or RUSSIA-UKRAINE WAR IMPACT or ISRAEL-HAMAS WAR IMPACT

COVID-19 IMPACT

Collateralized Loan Obligation (CLO) Industry Had a negative Effect Due to Credit Risk and Loan Defaults during COVID-19 Pandemic

The global COVID-19 pandemic has been unprecedented and staggering, with the market experiencing higher-than-anticipated demand across all regions compared to pre-pandemic levels. The sudden market growth reflected by the rise in CAGR is attributable to market’s growth and demand returning to pre-pandemic levels.

In the beginning of the pandemic, businesses fell short of their revenue goals because stay-at-home orders, changes in how things were shipped and lessened demand caused slowdowns. This situation caused an increase in both downgrades and defaults on loans, with most affecting the leveraged loans that make up CLO portfolios.

LATEST TRENDS

Integration of ESG Factors to Propel Market Growth

More often, the consideration of Environmental, Social and Governance (ESG) factors is playing a role in how CLOs are put together. Green and sustainability-linked borrowing is becoming a bigger part of managers’ investment strategies and using ESG ratings helps assess each investment. Sharing information about ESG in CLOs is making investors more confident in these structures and persuading new ESG-centered investors to get involved, in spite of difficulties when standardizing ESG variables in CLOs.

COLLATERALIZED LOAN OBLIGATION (CLO) MARKET SEGMENTATION

By Type

Based on type the global market can be categorized into Consulting Service and Solution.

• Consulting Service- The purpose of this consulting service is to assist financial institutions, asset managers and issuers with designing and setting up CLOs.
• Solution- Due to heavy credit, market and operational risks, managing risks plays an important role in CLOs.

By Application

Based on application the global market can be categorized into Large Enterprises and Small and Mid-sized Enterprises (SMEs).

• Large Enterprises- Many large companies must borrow money for big projects, mergers or to pay off what they already owe.
• Small and Mid-sized Enterprises (SMEs)- Though CLOs mainly support larger corporations with loan products, the extra credit liquidity they promote benefits smaller companies too.

DRIVING FACTORS

Demand for Higher-Yield Investments to Drive Market Advancement

One of the key driving factors in the Collateralized Loan Obligation (CLO) market growth is the Demand for Higher-Yield Investments. When interest rates are low, pension funds, insurance companies and hedge funds try to find assets that deliver returns greater than those of government bonds. CLOs earn strong returns because they combine leveraged loans that usually have higher interest rates thanks to their risky credit.

Growth in Leveraged Loan Market to Expand the Market

The leveraged loan market is carefully followed by the CLO market since CLOs mostly focus on these loans. A rise in corporations’ borrowing, mainly from those with lower credit ratings, helps to keep the supply of leveraged loans strong. Corporate refinancing, mergers and acquisitions, as well as spending on capital projects, increase the volume of leveraged loans and so support an upward trend in CLO issuance.

RESTRAINING FACTOR

Credit Risk and Defaults to potentially impede Market Growth

The use of leveraged loans mainly held by CLOs, for businesses with low credit ratings, creates a higher risk of borrower defaults. If many of the underlying loans cannot be repaid, CLO investors who own the lower tranches could lose their investment. Because of credit risk, CLOs tend to be less desirable when the economy is down, so the market growth slows.

OPPORTUNITY

Increased Corporate Borrowing and Leveraged Loan Market Expansion To Create Opportunity for the Product in the Market

More and more companies looking for investment funds to grow, take over other businesses or repay debt are going to the market for leveraged loans. Because of this growth, CLOs enjoy enhanced benefits from pulling money together from these loans. Because the supply of base loans is increasing, CLO managers can choose loans from a wider variety of sectors which strengthens the quality and diversification of their deals.

CHALLENGE

Regulatory Changes and Compliance Could Be a Potential Challenge for Consumers

The market for CLOs is governed by different regulations in every region, requiring organizations to follow requirements for capital, retaining risk and disclosure rules. Changes in regulation can add cost to issuance, influence the design of CLO deals and reduce the number of investors that might take part. By example, as part of the new rules, CLO managers or sponsors must hold part of the CLO. This can influence their choices about issuing more CLOs.

COLLATERALIZED LOAN OBLIGATION (CLO) MARKET REGIONAL INSIGHTS

●       NORTH AMERICA

North America has emerged as the most dominant region in the Collateralized Loan Obligation (CLO) market share due to a convergence of factors that propel its leadership in this dynamic industry. Since the region’s leveraged loan market is the largest and most mature in the world, it supplies CLOs with a variety of assets.

• EUROPE

Europe is the second-biggest area in the CLO market, after North America. Many companies in Europe issuing leveraged loans and rising interest in alternate credit give the European CLO market a boost.

• ASIA

Although the Asia Pacific CLO market is younger than those in North America and Europe, it is expanding as the corporate debt markets in the region progress. Higher economic growth, more corporate borrowing and more investors joining in China, Japan and Australia are helping to prepare the way for CLOs.

KEY INDUSTRY PLAYERS

Key Industry Players Shaping the Collateralized Loan Obligation (CLO) Market Through Innovation and Market Expansion

Key enterprise players are shaping the Collateralized Loan Obligation (CLO) marketplace through strategic innovation and marketplace growth. The most important companies in the Collateralized Loan Obligation (CLO) market promote sound risk management, a broad range of investments and adoption of technology to compete in changing conditions and uncertain markets. They are using advanced analytics and artificial intelligence to more effectively assess the loans they purchase.

LIST OF TOP COLLATERALIZED LOAN OBLIGATION (CLO) COMPANIES     

● Ernst & Young (U.K.)

• Guggenheim Partners (U.S.)
• Deloitte (England)

KEY INDUSTRY DEVELOPMENTS

Nov 2024: The Barings Euro Middle Market CLO 2024-1 DAC was priced at €380 million in the debut European CLO that Barings announced.

REPORT COVERAGE

The study encompasses a comprehensive SWOT analysis and provides insights into future developments within the market. It examines various factors that contribute to the growth of the market, exploring a wide range of market categories and potential applications that may impact its trajectory in the coming years. The analysis takes into account both current trends and historical turning points, providing a holistic understanding of the market's components and identifying potential areas for growth.

The research report delves into market segmentation, utilizing both qualitative and quantitative research methods to provide a thorough analysis. It also evaluates the impact of financial and strategic perspectives on the market. Furthermore, the report presents national and regional assessments, considering the dominant forces of supply and demand that influence market growth. The competitive landscape is meticulously detailed, including market shares of significant competitors. The report incorporates novel research methodologies and player strategies tailored for the anticipated time frame. Overall, it offers valuable and comprehensive insights into the market dynamics in a formal and easily understandable manner.