Last week we came to Tokyo for meetings with our investors and friends in the region, as well as participating in S&P’s stellar Structured Finance Seminar 2025. Along with almost 200 attendees we heard senior ratings analysts and leading CLO market participants discuss trends and outlooks for global leveraged finance, CLOs and other securitized strategies. 

For our panel, “Private Credit, Middle Market CLOs and Fund Finance,” we discussed why the illiquid asset class has spawned so much growth in so many areas of structured finance. In part it’s the growing sophistication of financial engineering around CLOs and related vehicles. Dropdown structures, for example, are increasingly employed to leverage a variety of funds including BDCs, funds, and SMAs.

As S&P analysts highlighted, the smaller size and lower liquidity of PC assets mean they receive a notch or two lower rating than publicly rated loans. PC CLOs also historically have shorter reinvestment periods than BSL transactions; say, four vs. five years. They also have less ability to reinvest after that period ends, with prepayments and recovery proceeds paying down debt. Both these items serve as further investor protections given the illiquidity of the assets.