US CLO Manager Barometer: Signs of credit stress to come?

Research evidence excerpt

US CLO Manager Barometer: Signs of credit stress to come?

US Manager Barometer – July 2026

ALL DEALS (BSL, inside + outside reinvestment)

CLO market value metrics are softer YoY

1 / Credit – incremental improvements

Moody’s WARF continues to show an improvement at the

headline across CLO portfolios with the July reading of 2680 a 5-

point contraction from June’s level. This brings the YTD WARF

average to 2700, a material improvement on 2025’s FY 2767

average and well inside the 2771 level last July.Summary

The continued improvement in WARF reflects several trends, such

as a downgrade to upgrade ratio for loans in the Morningstar LLI

that continues to hover at its most constructive level since mid-

2022, and the number of CLO bond paydowns remaining robust,

an enabler for sunsetting older deals with degraded loanTrend

portfolios.

But the multi-year low in average WARF is also reflective of a

broader portfolio style shift that has tended to favor higher 2 / Market Value – a signal of credit stress to come?

quality names during a period of higher interest rates. With

dispersion and tail risk growing in the loan market, this up-in- Despite credit metrics incrementally improving, market value metrics

quality bias will likely persist for the foreseeable future and should continue to head in the opposite direction – BB MVOCs fell month-

be one of a few factors that keeps headline WARF at a tight level. over-month by 30 bps and are now at 103.9%. Although this is an

improvement from the end of Q1 – when loan prices sold off over

CCC / Caa1 exposure also remains at a very constructive level, software-sector concerns – the current level points to a sharp

with both the S&P and Moody’s figures now at 3.7%. Last July departure from 2025, when the BB MVOC averaged just north of