Fitch Ratings upgrades 39 classes, affirms 343 across 59 U.S. BSL CLOs

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Fitch upgrades BSL CLO classes

Highlights

Fitch Ratings upgraded 39 classes and affirmed 343 classes across 59 U.S. BSL CLOs, citing stable portfolio performance and new rating criteria released June 1, 2026.
Upgrades included 30 one-notch and nine two-notch increases, with rating actions generally matching model-implied levels except where default rate cushions were insufficient at higher ratings.
Portfolio credit quality remained in the 'B' category, losses ranged up to 4.0%, and diversification was strong with 228 to 487 obligors per CLO reviewed.

Criteria update shapes rating actions

As reported by Fitch Ratings, the agency has upgraded 39 classes and affirmed 343 classes from 59 U.S. collateralized loan obligations backed primarily by first-lien senior secured leveraged loans. Of the upgraded classes, 30 were raised by one notch and nine by two notches.

The agency says the actions are primarily driven by stable portfolio performance and its updated "CLOs and Corporate CDOs Rating Criteria," published on June 1, 2026. On June 5, 2026, Fitch placed certain CLO tranches Under Criteria Observation pending review under the revised framework, but the tranches covered by these actions were not included because Fitch either saw no likely rating impact at that stage or had been told transaction documents would be amended to align with the new criteria.

Fitch also completed an updated cash flow analysis for transactions still inside their reinvestment periods using its Fitch Stressed Portfolio. For KKR CLO 40 Ltd. and KKR CLO 42 Ltd., which exited reinvestment on April 20, 2026, and July 20, 2026, respectively, the agency used a stressed portfolio assumption that includes a one-notch downgrade to the Fitch Issuer Default Rating equivalency for assets carrying a Negative Outlook on the obligor's driving rating.

Portfolio cushions support current ratings

The rating actions are generally aligned with model-implied ratings, although 54 classes are rated one notch below and 38 classes two notches below their respective model levels. Fitch says those differences reflect insufficient breakeven default rate cushions at higher rating levels.

Most transactions in the review have recorded losses ranging from nominal levels to 4.0%, reflecting defaults and trading losses. Even so, Fitch says all notes retain sufficient breakeven default rate cushions to support current ratings and absorb potential weakening in portfolio credit quality.

Across the reviewed transactions, overall portfolio credit quality remains in the 'B' category, with weighted average rating factors ranging from 20.9 to 24.9 and weighted average recovery rates from 71.1% to 74.1%. Portfolio diversification also remains adequate to strong, with 228 to 487 obligors per transaction and the top 10 obligors accounting for between 5.7% and 10.6% of each portfolio.

In our earlier coverage of Fitch’s rating actions on Grosvenor Place CLO 2024-2 DAC, we reported that several class C to E notes were upgraded and removed from Under Criteria Observation, while the remaining notes were affirmed. Fitch linked the moves to the updated “CLOs and Corporate CDOs Rating Criteria” published on June 1, 2026, citing losses that remained well below rating-case assumptions during the reinvestment period.

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