A Pleasant Surprise: The U.S. CLO And ABL Markets’ Resilient Mid-2026 And What It Means For H2

The Headline: A Market That Kept Delivering

2026 opened with a run of bad luck for credit markets generally: new tariff announcements rattled sentiment, a wave of software-sector loan downgrades tied to AI disruption fears spooked investors, and the outbreak of conflict involving Iran sent energy prices higher just as everyone was trying to read the macro tea leaves. Given all of that, the pleasant surprise is simply how little of it actually showed up in CLO issuance numbers. Combined broadly syndicated loan (“BSL”) and middle-market/private credit CLO issuance in the United States came in at roughly US$103.3 billion across 236 deals in the first quarter, then jumped to US$126.5 billion across 285 deals in the second quarter.¹ This put the first half of the year at close to US$230 billion, a solid number by any measure and a genuinely impressive one given what the market had to absorb along the way. Of the second-quarter total, BSL deals made up US$111.7 billion and middle-market CLOs US$14.9 billion; middle-market deals have now held steady at roughly a fifth of overall volume for three straight years running, which tells us private credit has earned a permanent seat at the CLO investor base’s table.

This is certainly something we are seeing play out as well with our own clients: several of the CLO managers we work with who stepped back from new issuance in April were back pricing deals by the middle of May, and more than one described investor appetite for their reset transactions as the best they had seen all year.

Zoom in on the monthly pattern and the resilience is even more apparent. Of the three months in the quarter, April lagged well behind the other two, with issuance coming in at only about US$26.7 billion² as all three shocks landed on the market at once. Activity then picked up meaningfully: taken together, May and June produced most of the quarter's volume, and pricing kept improving alongside it. In our view, a market that shakes off a bad month within a matter of weeks is telling us something meaningful about the underlying strength of investor demand.

It also helps to put 2026 next to 2025, which was itself a very strong year. In 2025 BSL CLO issuance came in as the second-highest annual total ever recorded³, on top of an already-large stock of outstanding BSL and middle-market CLOs. That 2026 is running close to that pace while working through a noticeably rockier macro environment strikes us as a genuinely encouraging sign, not a cause for concern.

The broader picture for credit managers levering their platforms, particularly through asset-based loan (“ABL”) facilities, has been similarly encouraging. Setting aside some discrete examples of banks pulling back from new ABL issuance early in Q2, we have otherwise seen robust ABL activity throughout the spring and summer. This has been true across a wide cross-section of portfolio strategies, fund structures and jurisdictions: in general, credit managers asking if leverage solutions on attractive terms are available in the current environment have found the answer to be “yes”.

Looking Ahead: We Project Robust Issuance in Q3 and Q4

We project robust issuance for the third and fourth quarters, and the reasoning behind that view holds up well against what other market participants are saying. Sell-side research desks have said they expect the pace of new-money issuance to pick up meaningfully in the back half of the year, pointing to a large pool of existing BSL and private-credit deals - on the order of several hundred billion dollars - that are now economically attractive candidates for refinancing or reset. One mid-year market commentary strikes a similarly optimistic note on pricing conditions for new deals heading into the second half, expecting spreads to stay in a comfortable range as investor nerves around macro and geopolitical risk continue to settle. Separately, rating agency and market data providers have published full-year outlooks describing 2026 as shaping up to be one of the strongest years the CLO market has seen, driven by potential future interest rate cuts, a pickup in M&A and leveraged buyout activity, and credit fundamentals that remain in reasonably good shape.⁴

That outlook lines up with what we are hearing from our clients. In fact, a number of the managers we advise are already lining up warehouse facilities and ABLs aimed at closing new deals in the third quarter, and at least one sponsor has told us it is looking at moving a transaction originally planned for early 2027 forward into this year.

Taken together, we like the setup heading into the back half of the year: a large class of 2024-vintage deals is about to come out of its non-call period and become eligible for refinancing, spreads have been trending the right way, and most forecasters expect the pickup in dealmaking activity to translate into a healthy supply of new loans for CLOs to buy and for managers to lever. All of that points toward a strong close to 2026. We are perennial optimists but it would not surprise us if the year ends up setting a new record.

Themes Shaping the Market - and Why They Are Good News

Exchange-traded funds (“ETFs”) are bringing in a genuinely new pool of buyers. ETFs that invest in CLO securities have gone from essentially nothing five years ago to well over US$30 billion in assets today, with tens of billions of dollars of net inflows in the past year alone.⁵ What we find most encouraging about this is not just the size of the number, but who it represents: retail and other investors who previously had no practical way to buy CLO tranches now have one, which should mean a broader and more durable base of demand for the asset class over time.

Private credit's growing overlap with the broadly syndicated market is a sign of a maturing asset class, not a fragile one. Middle-market CLO and credit managers are increasingly reaching up into larger, so-called upper-middle-market loans, and some are bringing in outside equity investors to fund their deals in ways that look more like the broadly syndicated playbook. Yes, two well-publicized bankruptcies in private credit late last year generated a lot of headlines. But the more we look at it, the more those episodes look like isolated, company-specific problems rather than evidence of anything systemic, and middle-market CLO and ABL issuance has continued at a healthy pace, even if a few managers have felt some effects at the margins.

We also see CLO and ABL documentation evolving in a balanced way. Some transactions have tightened up portfolio concentration limits and cash-management mechanics in ways that favor debt investors, while equity investors have held onto flexibility around participating in liability-management exercises and timing cash distributions. We read that even-handedness as a healthy sign: it suggests both sides of the table still have real negotiating leverage, which is exactly what you want in a functioning market.

In the ABL financing space, we are also seeing an expansion of options for credit managers, both in terms of financing structures and counterparties. Traditional bank-led ABL financing continues to be an attractive option for many managers, with a number of newer participants angling for market share in both lead and syndicate roles. Alongside that, we have seen an increase in rated financing structures (both insurance- and bank-led), as well as a myriad of hybrid ABL/subscription line structures. These trends are a continuation of an evolution in the market that began some time ago, and which we have every reason to believe will continue apace.

CLO equity and CLO equity funds remain a market to watch, and our conclusion is one of patience rewarded. As we will discuss in an upcoming OnPoint, tight arbitrage and compressed day-one returns have tested investor conviction this year, but the asset class's embedded optionality (i.e., the ability to reinvest into wider spreads, buy discounted loans during dislocations, and refinance or reset when conditions allow) has historically decoupled realized returns from day-one economics. Dedicated CLO equity funds, both captive and third-party, continued to attract institutional capital at scale in 2026, including several large platform closings, and we expect rated feeder structures and expanding retail and private-wealth access to keep broadening the investor base for the asset class into the second half of the year.

Finally, we would be remiss if we failed to mention the more bespoke aspects of the market. Private CLOs let private credit managers extend the CLO technology's cheaper, longer-term financing to loans that would not otherwise trade in the syndicated market, and have grown alongside the broader institutionalization of direct lending. CFOs of corporate credit funds, by contrast, securitize a manager's equity or fund interests in one or more underlying credit funds rather than the loans themselves, giving sponsors and investors a further tool to raise rated, capital-efficient financing against private credit fund exposure. Both structures reflect the same broader trend we highlight throughout this update: private credit's continuing convergence with, and borrowing from, the broadly syndicated CLO market's structuring playbook.

Regulatory and Legal Developments in the News

The U.S. regulatory picture has gotten some additional clarity. The SEC dropped its proposed expansion of custody requirements for CLO managers last year after the industry pushed back hard, and this spring SEC staff confirmed that CLO debt held by registered funds will not count against the 10% cap those funds face on investing in other funds. Both of these were wins for the market. Banking regulators also stepped back from a decade-old set of leveraged lending guidelines late last year.

Europe hit a speed bump, but the road ahead looks better. European regulators surprised the market last year with new guidance on how collateral managers qualify to hold their required risk retention stake, which forced some managers to restructure how they satisfy that requirement - the market adjusted within months by switching to a different contractual structure. The better news is that European Parliament members are now circulating draft language that would give managers clearer safe harbors, a facts-and-circumstances test instead of a rigid rule, and a specific carve-out protecting funds sponsored by regulated asset managers. If it survives the legislative process, that would resolve a genuinely long-running source of uncertainty for the European market.

A regulatory development worth monitoring relates to the National Association of Insurance Commissioners (the “NAIC”). After several years of study, the NAIC's Risk-Based Capital Investment Risk and Evaluation Working Group voted in June 2026 to recalibrate how insurers must capitalize their CLO holdings, and the NAIC's Financial Condition Committee signed off on the changes on July 8, 2026. The 45% capital charge on CLO equity (residual) tranches carries over unchanged, but a new add-on now applies specifically to thin, below-investment-grade slices of broadly syndicated CLOs. Insurers will apply the updated factors starting with their year-end 2026 risk-based capital reporting, across both BSLs and middle-market CLOs. We see this less as a warning sign for the market than as regulators fine-tuning a capital framework to better track actual risk -- and since the substance of the change had been well flagged in advance, it landed without any real surprise to market participants.

Bottom Line

Our take: the U.S. CLO and ABL financing market handled a genuinely rough first half of 2026 better than most would have expected, and the pieces are in place for a strong second half - a large pool of deals ready to refinance, spreads moving in the right direction, friendlier US regulation, a promising fix taking shape in Europe, and an active M&A market that should keep feeding the loan pipeline. We project robust issuance in the third and fourth quarters, and everything we are seeing, both in the public data and directly from clients, supports that view. In honor of their farewell tour, we paraphrase a line from Journey’s classic song and suggest that this market is not ready to stop believing and the run still has plenty of road left before it is finished.

Footnotes

1. Trepp/KopenTech CLO market snapshots (Q1 and Q2 2026).

2. Trepp/KopenTech CLO market snapshots (Q1 and Q2 2026).

3. Trepp/KopenTech CLO market snapshots (Q1 and Q2 2026); Valuation Research Corporation, Structured Products Market Trends Q2 2026.

4. American Banker/Asset Securitization Report (BofA Securities outlook); Yahoo Finance/Deutsche Bank mid-year CLO commentary; KBRA 2026 Structured Credit Sector Outlook; LSEG 2026 Year-Ahead Outlook.

5. Trepp/KopenTech CLO market snapshots; Valuation Research Corporation, Structured Products Market Trends Q2 2026 (see references in footnote 3).