Private Credit Market: Q3 2025
Spreads, issuance, and CLO pricing trends — what shifted this quarter and what it means for managers and allocators.
TL;DR
- CLO liabilities tightened across most tranches; AAA costs remain supportive of equity math.
- Primary windows reopened post-Labor Day; refi/extend flows still dominate leveraged credit.
- Direct lending yields remain compelling, even as spreads compress; underwriting discipline is the edge.
1) Spreads: where we tightened—and where we didn’t
Secondary CLO paper firmed across the stack in Q3, led by AAAs and AAs. That keeps the liability curve friendly even as underlying loan spreads sit near cycle tights. In public credit, IG OAS remained in the 80s–90s bps neighborhood—risk appetite stayed supportive.
Operator’s note: Don’t chase yield by sliding down quality. Tight spreads = narrow error bars.
2) Issuance: the window is open (for now)
Issuers sprinted back after Labor Day and calendars filled quickly. In leveraged loans, refinance/extend transactions still make up the bulk of prints, but new-money is creeping back as macro confidence improves.
3) CLO pricing & equity math: still constructive
With AAAs tighter and mezz sympathetic, new issues, resets, and refis pencil better. Equity IRRs remain viable provided managers keep CCC drift in check and stay disciplined on collateral selection.
4) What it means—playbook
For Managers
- Sequence resets/refis to lock in cheaper liabilities; focus on docs that maximize flexibility.
- Favor borrowers with resilient cash generation; be allergic to casual PIK and aggressive “liability management.”
- In direct lending, protect gross → net with fee discipline and active monitoring.
For Allocators
- Use AAAs/AAs for liquidity + carry; BBs only with seasoned managers and tight governance.
- Back platforms with true origination and workout capabilities—not just AUM growth.
- Pace commitments; pay for edge, not capacity.
5) Watch items into Q4
- Fed path & macro data: a benign cut extends the window; any growth scare hits mezz first.
- Secondary/primary basis in CLOs: if secondary cheapens, primary clearing levels must follow.
- Credit drift: rising PIK/thin coverage can stay hidden—until it isn’t. Underwrite recoveries.
Sources: VanEck, Wellington Management, McKinsey Global Private Markets 2025, Reuters IG issuance (post-Labor Day), Fitch leveraged loans, Akin (bank–private credit partnerships), KKR direct-lending outlook, Man Group, PineBridge (CLO demand).