Egan-Jones released monthly report on collateralized loan obligation CLO market, finding credit metrics across deals it rates held steady even as interest rates and high-yield spreads moved higher in September. For investors, publication sets steadier portfolio measures against tighter rate backdrop. Among Egan-Jones measures, weighted average rating score, gauge of default risk in deal underlying loans where lower score indicates stronger credit, has improved over past year. Share of assets rated CCC+ or lower, weakest tier of loan ratings, has been stable to slightly lower, with median of 6.1%. As of September 2026, Egan-Jones rated 1,568 CLO deals.
Steadier metrics come as financing conditions shift. 5-year Treasury yield rose 60 basis points to 5.09%, highest close of 2026, and on September 16 Federal Reserve raised rates by 25 basis points, first increase since 2023. High-yield spreads widened to 312 basis points from late-August low, while new CLO issuance totaled 91 deals $38.2 billion, down 12.5% by count from year earlier.
Higher rates cut both ways for CLOs, according to analysis: coupons on underlying loans reset upward, but so do interest burdens of borrowers. Egan-Jones points to rising loss severity on distressed exchanges and other selective defaults, and identifies software loans, pressured by concerns over disruption from artificial intelligence, as weakest sector in CLO portfolios.
Egan-Jones also compares ratings with those of other agencies across 20 deals, ranking tranches where views differ most. On comparison, Egan-Jones currently tends to take more positive view of CLO credit quality than other credit rating agencies. Full sample rating report on MP CLO VIII, whose largest industry exposure is High Tech Industries at 15.9%, included.
Taken together, findings describe market in which issuance eased and borrowing costs rising, while credit profile of Egan-Jones-rated portfolios remains stable. Watching where pressures such as software exposure and loss severity building may help investors assess CLO risk as rate cycle turns.
About Egan-Jones Ratings
Egan-Jones, NRSRO founded in 1995, offers timely and accurate credit ratings and proxy services.
