Outlooks 2026: Global leveraged finance and CLOs

Video Summary

LBO, M&A deals are set to return in 2026, boosting CLO formation

Borrower-friendly markets will remain a double-edged sword, adding liquidity but heightening credit risks.

Executive Summary

Global Leveraged Finance 2026 Outlook: Issuance, competition to grow amid rising credit vulnerabilities

In 2026, we expect M&A and leveraged buyout (LBO) activity to accelerate in the US and EMEA, with refinancings to remain elevated. This outlook follows a year in which most regional markets absorbed or quickly rebounded from volatility, trade tensions and headline bankruptcies, which slowed issuance in parts of 2025. In the year ahead, factors shaping leveraged finance dynamics will include monetary policy shifts, more focus on hidden leverage, intensifying deal competition and the increasingly entrenched coexistence of private credit and broadly syndicated loan (BSL) lenders.

• Competition, hidden leverage, weaker documentation will increase risk in a borrower-friendly market. 
• Private equity poised to reignite LBO & M&A activity. 
• Issuance will grow; refinancing activity will remain strong.
• Tariff shifts, inflation, and geopolitical tensions remain key downside risks that could disrupt base-case projections. 

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Executive Summary

Global CLOs 2026 Outlook - Low rates buttress performance amid risks from competition

Supportive financing conditions from declining interest rates will bolster collateralized loan obligation (CLO) performance over the next year. Speculative-grade defaults will decline to 3.0% in the US and 2.4% in Europe by October 2026, down from 5.3% and 3.8% in October 2025. Amid low rates, expanding leveraged buyout (LBO) activity could boost new CLO formation, alongside a continued strong refinancing pipeline if CLO liability spreads remain tight. Competition for quality assets both within private credit and with broadly syndicated lenders will intensify. This will put leverage, valuation and transparency risks increasingly in the spotlight, with a growing prevalence of looser covenants, back-leverage structures, and payment-in-kind (PIK) features. In CLO portfolios, a sharp decline in asset spreads that has been accompanied by rating factors that have fallen only modestly means that managers will be constrained by collateral quality tests that leave little room for trade-offs in the course of buying and selling assets.

Key takeaways:

• US CLOs: Defaults will decline along with funding costs. 
• EMEA CLOs: High liquidity will keep defaults down. 

Explore the 2026 Outlooks hub for deeper analysis of the themes shaping 2026. We’re  bringing together the full set of regional and sector reports, including underlying credit drivers, risk factors, and the scenarios that frame our expectations for the year ahead.