KBRA releases its 2027 Structured Credit Sector Outlook, which provides market and performance themes as of year-to-date 2026, as well as issuance volume and forecasts for 2027, collateral performance trends, and rating surveillance outcomes.

Some key takeaways from the report include:

Themes to Watch: Following several years of robust issuance, the structured credit and collateralized loan obligation (CLO) market enters 2027 on solid footing, supported by generally resilient credit fundamentals and sustained investor demand. However, tight loan spreads, challenging CLO economics, and competition for capital could temper issuance.

Issuance Volumes: KBRA forecasts approximately $170 billion of combined U.S. broadly syndicated loans (BSL) and middle market (MM) CLO issuance in 2027, including $40 billion of MM volume, while European BSL CLO issuance is expected to reach €55 billion. Despite a supportive investor base, challenging CLO economics, subdued merger and acquisition activity, and more selective equity capital deployment could constrain volume relative to the high-water marks reached in 2024-25.

Spreads: U.S. and European AAA CLO liability spreads are expected to remain relatively stable in 2027, supported by persistent investor demand. However, shifting credit conditions and competing investment opportunities could exert modest widening pressure as investors become increasingly selective.

Credit Performance: Underlying corporate credit fundamentals are expected to remain broadly resilient in 2027, although slowing earnings growth, elevated leverage, and refinancing pressures could place additional pressure on weaker borrowers. As highlighted in KBRA’s Q3 2026 Middle Market Compendium, credit stress is increasingly concentrated among smaller borrowers and certain sectors, including commercial and professional services and health care services and technology.

Evolution of Leveraged Finance Market: As the broader leveraged finance and private credit market undergoes growth and evolution, investors have an increasingly wide variety of access points to corporate credit exposure. The continued expansion of business development companies, private credit funds, rated note feeders, and other structures provide managers with alternative portfolio financing solutions.

Surveillance Activity: KBRA’s structured credit ratings have demonstrated stability to date, supported by strong structural protections including robust credit enhancement, active portfolio management, and ongoing amortization. KBRA expects this resilience to continue in 2027 despite emerging borrower-level credit pressures

Click here to view the report.

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KBRA, one of the major credit rating agencies, is registered in the US, EU, UK, and Japan. 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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