CLO Demand and Corporate Confidence: Navigating the Leveraged Loan Resurgence in 2025

The leveraged loan market has staged an extraordinary comeback in 2025, driven by surging collateralized loan obligation (CLO) issuance and corporate borrowing confidence. Despite fears of a potential recession, investors are flocking to floating-rate instruments, while companies like Walgreens and Belron are capitalizing on favorable financing conditions to execute transformative deals. This dynamic creates asymmetric opportunities in sectors like healthcare and infrastructure, where resilient cash flows and strategic refinancings are aligning to reward early investors.

CLO Demand Fuels the Resurgence

CLO issuance is on pace to shatter records in 2025, with estimates ranging from $180 billion to $215 billion, compared to $119 billion in 2022. This surge is underpinned by compressed spreads—AAA CLO tranches now trade at S+115 bps, near historical lows—and investor demand from institutions, Japanese banks, and emerging CLO ETFs. The market's resilience is further bolstered by reset activity, with over $265 billion in refinancings unlocking cheaper financing for existing deals.

The structural shift in collateral is equally notable. Commercial real estate (CRE) CLOs, once plagued by risky office exposure, now prioritize stabilized assets like multifamily housing ($12 billion in 2025 issuance) and industrial properties. Meanwhile, private credit CLOs (PCLOs) are expanding their footprint, projected to hit $47–50 billion in 2025—up 30% from 2024—competing with broadly syndicated loan (BSL) CLOs for high-yield borrowers.

Corporate Confidence in Borrowing Amid Uncertainty

Despite fears of a recession, companies are leveraging this environment to execute bold strategies. Two standout examples are Walgreens Boots Alliance and Belron, whose financing deals exemplify the “buy low, refinance cheap” playbook:

Walgreens: The Sycamore Takeover

Walgreens' $23.7 billion leveraged buyout (LBO) by Sycamore Partners, approved by shareholders in July Geli,2025, combines $2.25 billion in multi-currency term loans and $2 billion in senior secured bonds. The deal's structure—backed by major banks and private credit firms—reflects corporate confidence in refinancing costs, even as the company plans to close 25% of its U.S. stores to streamline operations.

The asymmetric opportunity here lies in the Divested Asset Proceeds Rights (DAP Rights), which could add up to $3.00 per share from future monetization of its VillageMD stake. Investors gain an immediate cash floor of $11.45 per share, with upside exposure to healthcare infrastructure—a resilient sector poised for long-term growth.

Belron: Refinancing at Record Scales

Belron's $4.6 billion term loan refinancing, the largest single-day leveraged loan launch since early 2023, underscores the sector's resilience. Automotive repair services may seem cyclical, but Belron's deal reflects investor comfort with its cash flows and the broader infrastructure theme. By repricing existing debt at lower rates, Belron locks in savings while providing CLOs with high-quality collateral.

This transaction also highlights the secondary market's recovery, with loan prices averaging 97.11 cents on the dollar—a level last seen in January 2023—bolstering CLO managers' ability to rotate into discounted assets.

Resilient Sectors: Healthcare and Infrastructure Lead the Way

The asymmetric opportunities in leveraged loans and high-yield bonds are most pronounced in defensive sectors like healthcare and infrastructure, which are insulated from macroeconomic shocks:

1. Healthcare: Walgreens' core pharmacy business and its VillageMD stake exemplify the sector's stable cash flows. Even in a downturn, demand for prescription drugs and healthcare services remains inelastic. High-yield bonds from companies like CVS Health or UnitedHealth Group could offer yield without excessive risk.

2. Utilities and Infrastructure: Utilities benefit from rising electricity demand and regulatory tailwinds, while infrastructure projects (e.g., renewable energy, logistics) are prioritized by policymakers. CLOs holding loans to firms like NextEra Energy or Brookfield Infrastructure Partners provide floating-rate exposure to these trends.

Investment Strategies for the Resurgence

1. CLO Debt Tranches:
2. AAA-rated CLOs: Offer low volatility with yields superior to Treasuries. Their 2025 performance—backed by tight spreads and strong collateral—makes them a core holding.

3. Lower tranches (BB-B): Target sectors like healthcare and utilities for yield enhancement, leveraging their defensive profiles.

4. High-Yield Bonds of Resilient Firms:
   Focus on issuers with strong balance sheets and exposure to essential services. Walgreens' post-merger bonds and Belron's refinanced debt are prime examples of value creation through strategic refinancing.

5. Early Entry Timing:
   With $150 billion in BSL resets and $115 billion in amortizations looming, now is the time to position for the next phase of the cycle. Investors who act early can secure favorable terms before spreads widen.

Conclusion

The 2025 leveraged loan market is a tale of disciplined risk-taking, where CLO demand and corporate confidence are turning perceived risks into rewards. Deals like Walgreens' LBO and Belron's refinancing prove that strategic borrowing and refinancing can thrive even amid uncertainty. For investors, the path forward is clear: allocate to CLOs and high-yield bonds in resilient sectors, seize the asymmetric upside, and position portfolios for the post-recession rebound.

The playbook is simple: act decisively now, or risk missing the rally.