KBRA Releases Research – 2023 Structured Credit Sector Outlook: A Whole New World?

KBRA releases its 2023 Structured Credit Sector Outlook, which discusses structured credit issuance and themes for transactions and leveraged loans in 2022, as well as tailwinds and headwinds for issuance and performance next year.

As central banks around the world remain committed to battling inflation with monetary policy, how will the structured credit and leveraged loan market react to the fastest pace of rate hikes in memory? While recent Consumer Price Index (CPI) data has offered investors a morsel of hope that inflation has peaked, the prospect of the Federal Reserve engineering a soft landing is highly uncertain, and it still seems likely that the U.S. is headed toward a recession. While the impact of pandemic-era supply-and-demand challenges on corporate credit seems to be normalizing, higher interest expenses, labor costs, and weakening margins will continue to stress leveraged loans, collateralized loan obligations (CLO), and other structured credit products that hold them. Consensus loan default expectations have increased due to concerns about interest coverage levels, but the pace of credit drift in 2023 should be slower and less severe than in 2020. In response to increased default expectations and liability spreads that have widened considerably, new structured credit deals will likely be structured more conservatively over the next six to 12 months. Against this backdrop, it appears there will be more headwinds than tailwinds for CLOs and leveraged loans in 2023.

In the report, KBRA highlights its 2023 issuance forecast for U.S. structured credit and European broadly syndicated loan (BSL) CLOs. The former includes BSL and middle market (MM) CLOs, as well as bank and insurance trust preferred securities collateralized debt obligations (TruPS CDO). We also highlight recent KBRA research within the structured credit sector.

Click here to view the report

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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