KBRA releases research examining current trends across the structured credit landscape. U.S. collateralized loan obligation (CLO) issuance regained momentum over the summer despite a challenging macroeconomic backdrop. In recent months, CLO liability spreads have remained relatively tight amid persistent investor demand and manageable credit conditions. These conditions supported issuance, with volumes over the first two months of 3Q 2026 nearly surpassing the total recorded in 2Q, bringing year-to-date (YTD) new issuance activity in the U.S. broadly syndicated loan (BSL) and middle market (MM) to more than $111 billion as of August 2026. Still, total issuance remains approximately 20% below last year’s pace, mainly due to weak collateral formation and more difficult arbitrage conditions for BSL CLOs. Meanwhile, YTD 2026 MM and private credit (PC) CLO activity has kept pace with the prior year despite modest widening in MM CLO AAA spreads. In Europe, BSL volumes have largely kept pace with 2025, reaching nearly EUR40 billion in YTD issuance. European MM CLO volume surpassed EUR1 billion for the first time, underscoring the continued development of the region’s PC CLO market.

For the final months of 2026, KBRA expects strong demand for CLO liabilities, supported by recent and potential further base rate hikes. While credit performance remains broadly resilient, elevated rates continue to pressure highly levered corporate borrowers. While this has not translated to broad-based deterioration, stress has emerged on the margins. Ongoing geopolitical tensions, artificial intelligence (AI)-related concerns, and credit uncertainty remain key factors likely to further weaken an already weak mergers and acquisitions environment. These factors are poised to limit new loan and CLO supply while keeping spreads range-bound.

This KBRA report provides an overview of the structured credit market, including new-issue deal volume, benchmark spread levels, and notable activity through August month-end (ME). We also provide a recap of KBRA’s YTD 2026 rating and surveillance activity as of September ME.

Key Takeaways

  • KBRA issued ratings for 54 structured credit transactions through YTD September 2026, including 31 U.S. MM CLOs and credit facilities, eight European BSL CLOs, five trust preferred securities collateralized debt obligations, five synthetic risk transfers, three European MM CLOs, and two recurring revenue securitizations.

  • KBRA’s 2026 structured credit surveillance activity reflected continued stability. KBRA effectuated 380 rating actions across 86 transactions YTD, primarily affirmations, along with 15 upgrades and one downgrade.

  • U.S. BSL CLO issuance totaled $85.5 billion as of August ME, down 24% from the same period in 2025. European BSL CLO issuance totaled EUR39.4 billion over the same period, approximately 0.5% higher than a year earlier.

  • KBRA’s ratings for recurring revenue loan (RRL) asset-backed securities securitizations remain stable amid continued concerns around AI-driven disruption. We also continue to observe positive portfolio migration as larger, more seasoned borrowers transition from RRL to EBITDA-based covenants.

  • The KBRA Middle Market Default Monitor (KMDM)—our forward-looking gauge of borrowers in payment default, those for whom default is imminent, or those for whom significant sponsor or lender intervention has prevented a payment default—rate by count stood at 3.6% in September, up approximately 30 basis points (bps) from the prior month but still 30 bps below its recent peak of 3.9% in Q1 2025. At the same time, the KMDM rate by value declined roughly 10 bps month-over-month to 2.4%.

  • In KBRA’s rated BSL portfolio, the weighted average default rate by notional amount was 53 bps in Q2 2026, down from a two-year high of 72 bps in Q1 2026. We view the current KMDM and BSL CLO portfolio default rates as broadly absorbable within KBRA-rated debt structures, supporting continued rating stability.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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