Over the last number of years, the European Collateralised Loan Obligations (“CLOs”) market has remained remarkably active, with Ireland emerging as the leading jurisdiction for CLO issuance and structuring. Ireland’s robust legal framework, favourable tax regime and strategic position within the EU have made it the preferred domicile for CLO transactions. Recent developments, including amendments to EU securitisation regulations and growing investor appetite for diversified credit strategies, have further strengthened Ireland’s position at the forefront of the CLO market.
Building on this foundation, the market reached unprecedented levels in 2025. By the end of Q4 2025, CLO issuance hit an all-time high of €33 billion, driven by a surge in refinancing activity alongside strong new issuance volumes. This represents a significant increase from the previous highest quarter of €27 billion in Q4 2024. Additionally, this figure marks the highest quarterly figure in the past decade.
The refinancing boom reflects the impact of the European Central Bank’s interest rate cuts since mid-2024, which have made restructuring existing CLOs highly attractive. As CLOs are typically structured as fixed-income securities, falling interest rates enhance the value of underlying assets, fuelling investor demand. With rates continuing to decline, the CLO market is expected to maintain its upward momentum into 2026. In Q4 2024, Atlantic Star Analytics reported a record-breaking 3,608 SPVs active in Ireland, the highest number ever recorded at that time. This upward trend continued into 2025, with Q2 figures reaching 3,724 SPVs, representing a further increase of approximately 3.2% quarter-on-quarter. The sustained growth highlights Ireland’s position as a leading European jurisdiction for structured finance and securitisation vehicles, driven by strong CLO issuance and refinancing activity.
Changes in tax policy in the Netherlands in 2021 led to the relocation of more than €31 billion in CLO structures to Ireland, pushing the total of Irish domiciled vehicles to just under €153 billion across 414 vehicles. Recent data from the Central Statistics Office indicates that approximately 60% of Europe’s CLOs are now domiciled in Ireland.
Market Performance and Investor Dynamics
2025 has been an exceptionally strong year for the European CLO market, with issuance volumes surpassing those of the previous year despite a temporary slowdown in April and May. This lull was largely driven by market uncertainty following Liberation Day, a period marked by significant geopolitical and trade-related developments that prompted many investors to hold back during the spring months. Activity rebounded significantly in the latter half of the year, supported by increased refinancing and reset transactions. These adjustments were largely prompted by AAA spreads (the highest-rated tranche in the CLO capital stack, considered the safest investment with the lowest risk of default) remaining wider than investors anticipated, creating strong demand at the top of the capital stack but limited new issuance supply. Consequently, managers have opted to refinance or reset existing 2021–2022 vintages rather than launch entirely new deals.
Persistent spread dynamics have also encouraged tier-two and tier-three managers to explore opportunities further down the CLO stack, particularly in the BBB and BB tranches, where risk appetite plays a decisive role. Notably, some investors have expressed confidence in the B, C, and even equity tranches, citing attractive returns and stability with minimal default activity.
Overall, 2025 is projected to close as the strongest issuance year for European CLOs since the Global Financial Crisis, with volumes expected to reach approximately €50 billion. The market currently comprises 73 active CLO managers, with an average of six to seven new entrants annually. A significant portion of this growth is being driven by U.S. managers seeking exposure to what is perceived as a more attractive and resilient European market.
Despite this growth, asset managers are concerned about the impact of the Interest Limitation Rules (“ILR”) on debt securities and structured finance transactions. These rules restrict both intragroup and third-party interest, potentially increasing the effective cost of investment funding by capping the deductibility of net borrowing costs to 30% of EBITDA. This limitation could increase the taxable income of these vehicles, affecting the overall returns on debt securities, as the interest payments made by SPVs may no longer be fully deductible. While SPVs are often structured as orphan entities, with the issued share capital being held by a share trustee on trust for charitable purposes, this does not automatically qualify them for ‘Group of One relief’ or otherwise known as Single Company Worldwide Group. This exemption allows an SPV to be largely exempt from the impact of the ILR. It is important to consider the principles of consolidation and control, as outlined in IFRS 10, when assessing the impact of ILR on these structures.
Looking Ahead
2025 introduced two notable developments that signal potential shifts in the European CLO landscape. The year saw the issuance of Europe’s inaugural mid-market or private credit CLO. Barings executed the first European middle market private credit CLO, Barings Euro Middle Market CLO 2025-1 DAC, at €380 million. Market sentiment, as reflected in recent industry conferences, suggests growing interest in these structures, with expectations of increased issuance in the coming year.
Second, 2025 marked the completion of one of the first Luxembourg-based CLO transaction, Ares European Direct Lending CLO 1 S.à.r.l. in Luxembourg. This milestone is significant as it introduces Luxembourg as an emerging alternative jurisdiction for CLO issuance in Europe, historically dominated by Ireland. Recent amendments to Luxembourg’s securitisation law in 2022, combined with clarifications on orphan structures and tax treatment, have provided the legal certainty required for such transactions. These developments pave the way for Luxembourg to attract future CLO activity, signalling a potential diversification in European CLO domiciliation strategies.
Conclusion
The European CLO market has entered a transformative phase, with Ireland maintaining its position as the dominant jurisdiction for issuance and structuring. Record-breaking volumes in 2025, driven by refinancing activity and favourable interest rate conditions, underscore the strength and resilience of this asset class. At the same time, new developments, such as the introduction of mid-market CLOs and Luxembourg’s emergence as an alternative domicile, signal a broadening of the market’s scope and sophistication.
As regulatory frameworks evolve and investor appetite for diversified credit strategies grows, CLOs are poised to remain a cornerstone of European structured finance. Market participants should anticipate continued innovation in deal structures and jurisdictional strategies as the industry adapts to shifting economic and regulatory dynamics heading into 2026.
