Private credit element brings mid-market closer to BSL CLOs as spread basis narrows
- Victoria Zhuang
The spread basis between middle-market and BSL CLO paper has narrowed to its lowest level in recent years as middle-market CLOs attract new investors, according to 9fin data and sources.
In fact, on one key selling point middle-market CLOs have started to resemble their BSL cousins, reflecting a growing convergence between two once-distinct breed of CLOs, sources said.
Middle-market CLOs have traditionally had greater restrictions over owning covenant-lite loans compared to the broadly syndicated CLO market.
But in the past two years, certain middle-market CLO cov-lite baskets have grown to approach â and in some cases nearly match â the cov-lite allowance for BSL CLOs.
The advent of âprivate creditâ CLOs, which often own larger middle-market loans that rival the size of collateral once the province of BSL CLOs, has contributed to this evolution.