Sentiment at the 2026 JP Morgan Global Leveraged Finance Conference was surprisingly positive across many asset classes, and CLOs were no exception. While the ongoing issues with the software sector were a constant feature of discussions, so were the opportunities that lower loan prices could present, especially for CLO equity investors.
The packed conference, which took place in Miami from February 2-4, included a number of CLO panels among the issuer presentations and macro discussions, all dominated by software, the loan sell-off, and what both trends will mean for CLO liabilities in the secondary and primary markets.
“Software continues to be a theme in every conversation, but the message is getting out that CLO market participants shouldn’t use a broad brush to paint the entire software industry the same,” noted Steve Baker, Global Head of CLO Primary at JP Morgan, “The story is much more nuanced across CLO portfolios and there are many strong businesses that can excel with the advancements in AI.”
The market seems to agree with that, with new-issue BSL CLOs currently pushing ahead despite the choppy conditions, albeit pricing at wider levels. Three deals priced this week, with weighted average Triple A at 117-123bps (but note that these are often locked in weeks before the deal prices). CVC achieved the tightest Triple A execution so far this week with senior Triple As at 116bps (117 weighted average).
Looking at the pipeline, a large, liquid manager expects to price Triple As at 116 bps in the coming days, according to sources, but is talked with an OID of 0.5pt on its Triple B notes and 2pts on Double B notes. A newer manager saw its Triple A jump to 125bps Wednesday from 117bps Monday in pre-marketing, then improve to talk of 124bps Thursday morning, said sources, highlighting the current volatility.
The potential downside risk of software was highlighted across the panels, but so were the positive changes that the sell-off in loans could represent. One CLO manager said they had already repositioned their portfolios to be more nimble so they can take advantage of any relative value opportunities. And at least one large manager is said to be pre-marketing a print-and-sprint deal.
The change in market dynamics is especially impactful for investors in primary equity. According to Kris Pritchett, a Partner and Portfolio Manager at Ares, “CLO equity has had a rough couple of years, but today it is starting to look interesting again. You can now build a portfolio of loans considerably below par, while liability costs are close to multiyear tights.”
It isn’t just the day one arb that’s benefiting from the shift in market dynamics, but also longer-term return projections. “We’re starting to see some signs of life, with Triple As in the 122-123bps area.” noted Mike Nespola, senior portfolio manager and head of US CLO portfolio management at CIFC, “We can now model in flat loan spreads, maybe even some future widening, which also helps projected equity returns.”
The impact on existing CLOs is more nuanced, especially in the lower mezz. “The average CLO exposure to software is 15%, so it’s a widely held sector,” said Steve Page, a managing director at Barings. “Some analysts are suggesting a third of software names could default. But even if that happens, and even if the recovery is zero, most Double Bs are going to be able to withstand that. There is downside protection within the structure, but it doesn’t mean spreads aren’t going to go wider.”
Another investor pointed to CLO Double Bs in the secondary market as being a potentially interesting trade as they start to reach the low-90s, albeit one with a definite credit risk.
Secondary equity is an even more challenging place, but as one investor reminded their audience, part of the problem there lies in the widespread adoption of MVOC as a shorthand for equity valuation. Absent a default or LME, loans remain a par value product, and looking at secondary equity through that lens can give a very different valuation than MVOC.
Tom Davidson
thomas.davidson@levfininsights.com
+1 646 943 6231
