Collateralised loan obligation (CLO) issuance in EMEA is expected to stay at record highs next year, according to Moody’s Ratings, with volumes forecast to hit €55bn (£48.4bn) by the end of 2026.
In its Global CLOs Outlook for 2026, the ratings agency said record CLO issuance will come on the back of attractive loan spreads and strong leveraged finance issuance, as well as favourable arbitrage and strong investor risk appetite.
Meanwhile, CLO performance over the next year will be buoyed by supportive financing conditions from declining interest rates, according to Moody’s.
Read more: Moody’s: Middle-market CLO issuance on the rise
It expects speculative-grade defaults to fall to three per cent in the US and 2.4 per cent in Europe by October 2026, down from 5.3 per cent and 3.8 per cent, respectively, in October 2025.
In EMEA, high levels of liquidity will help to keep default rates down and both loan and CLO issuance volume high, but will also lead to “looser” loan terms, thereby “eroding the credit quality of new collateral”.
According to Moody’s, after levelling off in 2025, CLO collateral defaults in the US are set to decline in 2026, “even as competition between broadly syndicated and direct lenders increases risk in what is already a borrower-friendly market”.
In EMEA, it also expects corporate borrowers to continue to benefit from competition between broadly syndicated and direct lenders.
During 2025, each market refinanced about $26bn (£19.8bn) of the other market’s debt.
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However, with direct lenders likely to “rally” to address growing capital needs, competition for quality assets both within private credit and with broadly syndicated lenders could intensify, resulting in leverage, valuation and transparency risks.
In turn, this may weigh on credit quality for new debt issuances, Moody’s warned, “particularly as looser covenants, back-leverage structures, and payment-in-kind features become more prevalent, amplifying concerns around hidden leverage”.
While middle-market CLOs are a mainstream product in the US, private credit CLOs are likely to remain a niche product in Europe, although ongoing market growth could drive further innovation, according to the outlook.
“As in the US, CLOs remain the dominant leveraged loan investors in Europe,” said Frank Cerveny, senior research analyst at Moody’s.
“Reinvesting CLOs held about $201bn of leveraged loans as of the end of August 2025, up from $160bn same time last year.
“Newly-issued CLOs combined with the investment capacity of existing CLOs will continue to meet around 55 per cent of the refinancing needs for leveraged loans between 2026 and 2029. That could grow to 67 per cent if future issuance is aligned with the higher volume of recent years.”
Read more: Investor appetite for CLOs ‘surging’ but questions raised over risks
