Credit Crunch: Leveraged Loan, Private Credit, CLO Outlook 2026

The leveraged loan market's potential for compression and outperformance compared to bonds is examined, considering factors like ECB rate policies, private credit contagion, and geopolitical risks. Paul Mehta, Head of Leveraged Credit at Aberdeen, joins the discussion, offering insights into investor sentiment, CLO creation, and sector-specific pressures affecting leveraged loans. The conversation highlights that loans are currently in cheap territory, with potential for spread compression, while other credit asset classes are rich. Default rates, the influence of private credit, and the nuances of covenant-lite loans are also addressed, alongside CLOs and their increasing role in covering net loan issuance. The discussion concludes with an outlook on European private credit returns and a comparison between European and US loans.