Measure of Risk for Private Credit CLOs Signals Potential Danger
- S&P recently lowered far more credit estimates than it raised
- Credit ‘estimates’ focused on loans in private credit CLOs
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A measure of risk for private debt backing collateralized loan obligations surged in the third quarter, a sign that companies obtaining loans outside more traditional markets face persistent pressure from high interest rates, according to a report.
In a rare glimpse into the opaque world of private credit, a recent review of credit “estimates” by S&P Global Ratings showed that the quality of debt extended by private lenders to dozens of companies whose loans are bundled into CLOs is deteriorating. Less rigorous than official credit ratings, the estimates are used to evaluate the credit quality of debt inside private credit CLOs, which have recently grown more popular with investors.