KBRA Releases Research – Private Credit: Structured Credit Trend Watch—AI and Conflict Shape Market Outlook
NEW YORK--(BUSINESS WIRE)--#creditratingagency--KBRA releases research examining trends across the structured credit landscape. Structured credit and collateralized loan obligation (CLO) market activity was relatively stable in early 2026. Issuance volume remained on pace with 2025, average broadly syndicated loan (BSL) AAA CLO spreads were largely range-bound between 115 basis points (bps) and 131 bps, and middle market (MM) CLO AAA spread premiums tightened. However, these trends largely preceded the recent increase in market uncertainty.
KBRA believes that the conflict in the Middle East could reignite inflationary pressures, while continued strength in the labor market is clouding the direction of base rates and limiting the magnitude of additional monetary easing in 2026 (see KBRA’s 12 Things in Credit). At the same time, continued headline concerns around artificial intelligence (AI)-driven disruption and capital formation across credit markets are expected to remain key areas of focus. Together, these factors are likely to influence CLO issuance and spreads in the near term.
This KBRA report presents an overview of the structured credit market through Q1 2026, including new issue deal volume, benchmark spread levels, and other observed trends. We also provide a recap of KBRA’s year-to-date (YTD) 2026 rating and surveillance activity.
Key Takeaways
- KBRA issued ratings for 20 structured credit transactions totaling $5.7 billion in issuance through YTD May 2026. This included four European BSL CLOs, nine U.S. MM CLOs and credit facilities, two recurring revenue securitizations, three trust preferred securities collateralized debt obligations, one synthetic risk transfer, and one European MM CLO.
- KBRA’s 2025 and Q1 2026 structured credit surveillance activity reflected continued stability. In 2025, KBRA effectuated 901 rating actions across 169 transactions, resulting in 10 upgrades and no downgrades. In Q1 2026, KBRA effectuated 141 rating actions across 32 transactions, resulting in one upgrade and one downgrade. One mezzanine tranche was placed on Watch Downgrade in Q2 2026, largely because structural mechanics designed to protect the senior classes caused the junior class to defer interest.
- U.S. BSL CLO issuance totaled $40 billion in Q1 2026, outpacing Q1 2025 by about 12%. European BSL CLO issuance totaled EUR15 billion over the same period, approximately 12% lower than Q1 2025. The European BSL CLO market has seen a pause in new deal pricing following a robust 2025, as arbitrage economics have tightened. Meanwhile, the nascent European MM CLO market continues to evolve, with solid issuer and investor interest (see Private Credit: The Evolution of European Middle Market CLOs).
- KBRA’s ratings for recurring revenue loan ABS securitizations have remained largely unaffected by continued headline concerns around AI-driven disruption in high-growth software and technology sectors. KBRA believes the transmission mechanisms of AI-related disruption are still evolving and are more likely to emerge over multiple renewal cycles rather than in the near term (see Private Credit: Deep Dive on AI and Software).
- The KBRA Middle Market Default Monitor (KMDM) rate by count stood at 3.1% in Q1 2026, down 80 bps from its recent peak of 3.9% in Q1 2025. The KMDM by value increased to a recent high of 2.2% in Q1 2026. In KBRA’s rated BSL portfolio, the weighted average default rate by notional was 72 bps in Q1 2026, a two-year high. KBRA views the current KMDM and BSL CLO portfolio default rates as broadly absorbable within KBRA-rated debt structures, supporting continued rating stability.
Click here to view the report.
Recent Publications
- Private Credit: The Evolution of European Middle Market CLOs
- Private Credit: Deep Dive on AI and Software
- 12 Things in Credit: March 2026
About KBRA
KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.
Doc ID: 1015374
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gabriele.gramazio@kbra.com
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constantine.schidlovsky@kbra.com
