Commercial

ABS & CLO market highlights from 2024

January 10, 2025 |2 min read

ABS

  • Tightening spreads, elevated consumer debt levels, and active issuance in the auto and emerging “other” asset classes led 2024 ABS issuance to reach a new record. 2024 issuance totaled $328.5 billion, up 23.8% from 2023’s total of $265.3 billion and up 15.7% from the previous record of $283.9 billion in 2021. Auto, equipment, and “other” ABS issuance all set new record issuance levels in 2024.
  • Consumer debt saw branching trends across the credit spectrum in 2024, with lower-FICO pool performance largely stabilizing and higher-FICO pool performance continuing to worsen. While many lenders in the subprime space were quick to tighten underwriting, lenders did not adjust as quickly in the prime space. This led to continued weak performance as inflation, growing debt burdens, and job market pressures caught up to higher-credit borrowers.
  • Secondary ABS spreads tightened to their lowest levels since late 2021 in the fourth quarter after being largely range-bound through the rest of 2024, as Fed rate cuts, post-election clarity, and improving credit outlooks brought further investor demand to an already robust market. Looking ahead to 2025, policy impacts of the new administration, potential labor market softening, and the future of Fed policy moves are the largest unknowns and could impact spreads in either direction. 

CLO

  • The CLO market had a banner year in 2024, with both new issue CLOs and repricings reaching record levels. Total issuance of $489.0 billion was up nearly 250% from 2023’s muted level and surpassed the previous record of $438.4 billion in 2021. Demand for middle market (MM) and private credit CLOs is unwavering, with $37.9 billion of MM/private credit CLO new issuance in 2024 setting a record for the second consecutive year, coming in ahead of 2023’s total of $27.1 billion. 
  • Investor demand for CLOs kept funding costs attractive in 2024, with average BSL AAA coupons falling 42 bps year-over-year to 135 bps. The average cost of capital across the stack came in by 65 bps to 170 bps. Funding costs in MM/private credit CLOs also saw significant tightening year-over-year, with new issue AAA coupons averaging 161 bps in 4Q 2024, versus 244 bps in 4Q 2023, fueled by investor demand for MM/private credit exposure.
  • The growth of private credit has led to a battle for market share between banks and private lenders, with recent refinancings going back and forth between the broadly syndicated and direct lending markets. While private credit lenders stole significant market share from the BSL space in the last three quarters, bank lenders were able to capture more market share from private credit lenders in 2024 overall. However, 2025 is likely to lead to a growing battle for M&A financing between banks and private lenders.