Fitch Upgrades 30 and Affirms 161 Classes Across 28 U.S. BSL CLOs

BSL CLOs. Secured primarily by first-lien senior secured leveraged loans, these transactions are largely still in their reinvestment periods, though one transaction exited that period in July 2026.

The June 1 Criteria Update and UCO Designations

A central driver for these rating actions is the implementation of the CLOs and Corporate CDOs Rating Criteria, which Fitch published on June 1, 2026. This update necessitated a review of how tranches are monitored and rated.

Interestingly, the tranches involved in this specific review were not placed Under Criteria Observation (UCO) on June 5, 2026. According to Fitch, this was because initial assessments suggested no potential rating impact at the time, or managers had already expressed an intent to amend transaction documents to align with the new standards. While Fitch took action based on available information, the agency noted it had not received further updates on those potential amendments by the time of the review.

Portfolio Performance and BDR Cushions

Despite the criteria shifts, the underlying assets show a level of resilience. Most transactions in the group saw losses ranging from nominal amounts to 3.8%, stemming from trading losses and defaults.

The agency’s cash flow analysis, based on the Fitch Stressed Portfolio (FSP), generally aligned with model implied ratings (MIRs). However, there were notable discrepancies: 34 classes were rated one notch lower than their MIRs, and 13 classes were rated two notches lower. These variations are attributed to insufficient breakeven default rate (BDR) cushions at higher rating levels.

Currently, the overall portfolio quality sits in the ‘B’ rating category.

• Weighted average rating factors (WARF): Ranging from 21.3 to 26.3.
• Weighted average recovery rates (WARR): Between 71.9% and 74.4% on invested portfolios.
• Diversification: Obligors range from 153 to 438 per transaction, with top 10 obligor weights between 5.5% and 16.0%.

Specific Gains for Avoca CLO XXIII DAC

While the broader BSL CLO review provides a macro view, specific vehicles like Avoca CLO XXIII DAC have seen targeted improvements. On July 31, 2026, Fitch upgraded the Class B-1 and B-2 notes of this entity.

This upgrade was the result of improved structural performance and credit quality within the collateral portfolio. According to the report, the upgrade followed a comprehensive review of the collateral performance, including credit metrics and cash flow stability. Crucially, Fitch also removed the underlying collateral obligation (UCO) from its monitoring scope, signaling that the UCO no longer poses material risk to the overall credit profile of the collateralized loan obligation (CLO).

Rating Sensitivities and Future Triggers

The Stable outlook for these 191 classes is not unconditional. Future movements will depend on the interplay between realized losses and credit enhancement.

Downgrades are possible if projected or realized portfolio losses exceed initial assumptions and the existing credit enhancements fail to compensate for those higher expectations. Conversely, for tranches not already at the ‘AAAsf’ ceiling, upgrades may occur if the portfolio exhibits better-than-expected credit quality or if deleveraging increases the excess spread available to cover potential losses.

For those tracking individual entities, such as Gallatin CLO XI 2024-1, Ltd., the results are mixed: while the LT AAAsf rating was affirmed, other tranches like the LT A+sf and LT BBB+sf saw upgrades. For RR 18 LTD, Fitch affirmed the LT AAAsf rating for tranche A-1b-R and the LT AAsf rating for tranche A-2-R.

Regarding data adequacy, Fitch checked the consistency and plausibility of information received about asset pool performance and the transaction, but did not review origination files or third-party assessments. Additionally, Form ABS Due Diligence-15E was not provided to or reviewed by Fitch in relation to this action.