Hitch hike on CLOs & Situational awareness: Performance Update

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CLO Weekly

Hitch hike on CLOs & Situational

awareness: Performance Update

Market Overview

31 July 2026

When you don’t hike, market tells you to take a hike: a sharp rise in long-term rates

following the Fed activities this week highlights the defensive value of AAA CLOs in rates

volatility while investors wait for a clearer path. CLO AAA outperforms in July.

Securitized Products Strategy

Global

BBB/BB Supply & Rating Actions: BBB, BB and Non-IG CLO bonds trading volume

elevated recently as recent NAIC rulings make Jr BBB less attractive for insurance

companies, thus increased supply. We continue to see downgrades in BBB. 8 MM/PC

CLO downgrades marks the largest monthly downgrade wave except COVID.

Software update: Software prices have remained flat for the past week at around the

$91 mark. Sponsors continue to chip away at the maturity wall in software. Thus far,

about four names are in the market or have completed their A&Es. In at least two of

these, there was a bond component that got included in the transaction – which helps

participating lenders to reduce their exposure as some of that exposure gets paid down

into the bond. Lenders also negotiated tighter docs / higher spreads for the extension /

fees – a positive for CLO equity holders (Fees typically get classified as interest

proceeds).

We are seeing dispersion across CLO managers when it comes to adding or cutting

software in their portfolios. Overall in 2026 YTD, CLO managers have downsized their

software exposure from 15% to 14.5%. MoM changes in software share overall

remained nearly flat over the past month.

Serta Ruling update: After one manager indicated reservation of cashflows from

interest waterfall related to Serta litigation last week, another manager has indicated

that the Serta liability will reflect a reduced NAV. This will result in potential impairment

issues for mezz bonds should equity NAVs be already negative or close to 0.

CLO and Loan performance Update

CLO performance: In RP BSL CLO CCC/D share dropped to 3.9%, lowest since July

2022. The tail persists as 5% of the assets remains <$80. In RP PC CLO CCC% declined

…