Portfolio Manager Denis Struc and Research Analyst Zhulin Chen assess technology and software exposure in European CLOs amid rising dispersion, analysing CLO manager responses to AI related risks and how these are influencing underwriting, watchlists and portfolio positioning.
- AI is not viewed by Collateralised Loan Obligation (CLO) managers as a near-term default catalyst, but as a medium-term underwriting variable that could reshape competitive dynamics, compress terminal values, and widen dispersion between resilient and vulnerable software business models.
- Software exposure within European CLOs is differentiated, with core and specialist platforms seen as more resilient, while non-specialist application software issuers are identified as highest risk and are likely to see the widest dispersion in outcomes.
- CLO managers are responding through enhanced underwriting scrutiny, issuer segmentation, sponsor assessment and active portfolio management. For CLO investors, this underscores the importance of proprietary analysis, nimble active management, disciplined manager selection and ongoing engagement as loan market bifurcation accelerates.
