CLO Managers Bet Big on Buyout Revival to Lift Profits in 2026
A flare up in high-profile corporate buyouts is likely to spread into 2026, spurring demand for leveraged financing that could double by some estimates, according to debt managers.
Managers of collateralized loan obligations are banking on falling borrowing costs, rekindled M&A activity and looming debt maturities to fuel demand for the debt, which private equity firms and other buyers often use for leveraged buyouts and mergers. That’s even as a mismatch in supply and demand, and tightening spreads on leveraged loans have made returns challenging.
JPMorgan Chase & Co. analysts estimate M&A and LBO volume to double next year to $80 billion in high-yield bonds and $225 billion in loans.
“Corporate fundamentals remain in good shape and the Fed is easing, which should help spur more M&A off trough levels and make for a very busy 2026,” said Michael Marzouk, loan portfolio manager at Aristotle Pacific Capital.
Deals have been coming back strongly in the second half of 2025 after the Federal Reserve resumed cutting interest rates driving a surge in demand for cheap funding. Banks have underwritten around $65 billion of debt tied to leveraged buyouts for 2026, according to Bloomberg calculations, fueling hopes that next year could be one of strongest in the past decade.
Some of the already announced blockbuster deals will come to market in 2026. These include Electronic Art Inc.’s $55 billion buyout that comes with $20 billion of debt led by JPMorgan, and Blackstone and TPG’s $18.3 billion buyout of Hologic that will bring $12 billion to the debt markets.
Tight spreads
As M&A activity stalled in recent years, companies have been repricing or refinancing existing debt rather than taking out new loans to fund buyouts. That refinancing activity has cut into investors’ profits even as investment firms sell new CLOs — or bonds backed by loans — at a record pace.
CLO managers expect the Trump administration will take steps to ease regulation, further encouraging deal-making and potentially reversing some of this year’s spread tightening. The potential profits from bundling loans into bonds are the slimmest in about a year, according to recent estimates by Morgan Stanley.
