More than a month has passed since First Brands made headlines, raising credit risk concerns among CLO investors (and other credit investors for that matter). Still triple-A CLO spreads have reached S+119bps, showing that CLO primary activity remains robust — though the volume of US CLOs to print nearly halved over the past two weeks compared with two weeks prior, 9fin reported.

Amid this turbulence, some managers are demonstrating how disciplined risk management and structural innovation drive success in today's market.

9fin spoke with Joe Rotondo, senior portfolio manager and managing director on the credit investment team at MidOcean Partners. Rotondo discussed how MidOcean navigates today's complex credit environment — from managing CCC exposure and identifying undervalued assets, to addressing investor scrutiny and refining operational processes.

MidOcean has $4.26bn in AUM across 13 CLOs as of the end of September, according to 9fin‘s Q3 2025 CLO manager AUM rankings.

1. How do you feel about the loan supply? Do you think it’s boosting new issues, resets and refinances, or deal upsizing?

Although loan activity has been robust this year, the vast majority of issuance has been driven by repricings and refinancings of existing loans and not from new LBO and M&A activity. The CLO market would benefit from greater supply of new LBO and M&A driven supply. This activity has been muted for a number of years due to several factors including macro volatility and relatively high interest rates.

Now that the Fed has twice cut rates over recent months, borrowing costs are lower. If we experience a steady macro picture, resolution of more tariff issues and continued rate cuts, we could see a resurgence of LBO driven new issue loan activity. CLO primary activity has also been robust during 2025. The key driver of activity has not been loan issuance, but very strong demand for CLO liabilities. Liability spreads have tightened throughout the year and managers have taken advantage of this trend by executing refinancings and resets of older CLOs with high liability costs.

2. What are the biggest impacts on the CLO market from the recent bankruptcies of First Brands and others? How did these news headlines influence loan investors?

First Brands has impacted the market in several ways. Approximately 70 CLO managers had exposure to First Brands and took sizable losses to this single name. The second order impact is manager wariness and the goal to ensure that another First Brands situation is not hiding within portfolios. Managers are scouring their portfolios for potential idiosyncratic problems and are also focused on chemical industry exposure and any names that may have a real or perceived AI related risk.

3. Are CLO investors more cautious now following these headlines? What are the most frequent questions they will ask you about?

CLO investors are much more focused on credit risk management given the magnitude of the First Brands situation. Investors are asking about the credit underwriting and monitoring process, limits on single name exposure, depth of the analyst team, LME management and as well as exposure to the chemical sector and AI related credits.

4. How important is it to manage your CCC exposure these days? How are you going about it?

Managing CCC risk is an important portfolio management objective for all CLO managers. Improper management of CCCs could result in credit loss as well as CCC concentration breaches. On the other hand, avoiding CCC exposure could result in foregone opportunities and underperformance. In today’s market, there are CCC rated credits that are executing successful operational turnaround strategies and therefore represent opportunities for capital appreciation. Our strategy is to identify these types of CCC and include them in our portfolio.

5. What are the biggest areas of concern in the loan markets right now? On the flip side what’s undervalued?

The biggest area of concern continues to be single name, idiosyncratic credit risk. There are certain industries that are under pressure, such as chemicals and packaging. However, every sector includes credits that are over-leveraged and have performance problems. These are tomorrow’s liability management exercises. Despite this risk, we continue to see opportunities with credits that are successfully executing operational turnaround strategies.

6. Do you expect spreads to tighten or widen before the end of this year?

I think credit spreads will tighten slightly between now and year end. Prepayments continue at a steady pace and we need more loan supply to replenish these prepayments.

7. How do you feel about more CLO ETFs emerging in the market?

For the week ended October 31, CLO ETFs received net inflows which is a positive. We count nearly 30 ETFs that own CLO/ABS securities. The largest of these ETFs, JAAA, is more than 2x the size of all of these other ETFs combined. So the emerging ETFs will need to show some quantifiable differentiation to generate significant growth.

8. What structural innovation would you like to see in the coming year?

The loan settlement process and reconciliation process has room for improvement. First, to help facilitate reconciliations and reduce the number of discrepancies, we would like to see all agent banks develop a centralized database for lenders’ positions and transaction activity. Lenders and trustees could use this centralized data to ensure all positions and transactions are recorded accurately.

Second, banks should be able to leverage AI to eliminate manual administrative burdens and facilitate more timely loan settlements. Although parts of the loan settlement process have been automated, agent banks manually execute trades in ClearPar and this contributes to settlement delays.

9. How do you like MidOcean’s new office? Are there better dining options around Rockefeller Center?

We will be moving next summer. I commute into Grand Central, so I’ll be getting more steps each day. I look forward to being closer to Del Frisco’s.

9Questions is our Q&A series featuring key decision-makers in the corporate credit markets — get in touch if you know who we should be talking to!