Commentary

U.S. Structured Credit and Funds 2025 Midyear Outlook

Structured Credit

Summary

Morningstar DBRS published its U.S. Structured Credit and Funds midyear outlook update.

Key highlights include the following:

-- Some deterioration is expected for structured credit and funds in the second half of 2025. Compared with the beginning of the year, Morningstar DBRS changed their collateral performance outlook on three sub sectors, including private credit CLOs, investment fund debt, and collateralized fund obligations, assigning a negative outlook on the underlying collateral.

-- While Morningstar DBRS' structured credit portfolio -- including collateralized loan obligations (CLO) and funds -- is primarily backed by corporate credits, typically assessed via credit estimates, Morningstar DBRS is also increasingly seeing transactions backed by diverse portfolios of private credit loans.

"Growing macroeconomic pressures and heightened trade tension are expected to exert additional pressure on private credit CLOs, investment fund debt, and collateralized fund obligations," said Jerry van Koolbergen, Managing Director, U.S. Structured Credit Ratings at Morningstar DBRS. "Nonetheless, we maintain stable credit rating outlooks on all three sectors, as well as for broadly syndicated loan CLOs, subscription loans, and repackagings because of structural elements, such as credit enhancement and overcollateralization, that help to mitigate deterioration in the underlying assets."

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