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In this episode of Tranche Talk, *Cloud 9fin’*s CLO series, our global head of CLOs Tanvi Gupta, talks with Anjana Mohan Ravani, head of CLOs and corporate ABS at Redding Ridge Asset Management.
They dive into infrastructure CLOs as an exciting growth area and discuss the value proposition for investors looking to underwrite the asset class and what the portfolio composition would look like for these deals.
They dive into infrastructure CLOs as an exciting growth area and discuss the value proposition for investors looking to underwrite the asset class and what the portfolio composition would look like for these deals.
They also delve into the lay of the land in private credit, CLO triple-A investor sentiment and the potential misconceptions about captive equity returns.
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Tanvi Gupta
Hello and welcome to Tranche Talk. If this is your first time here, Tranche Talk is the CLO corner of the Cloud 9fin podcast, where we keep on top of the CLO market with the help of some of the key experts in the industry. I'm Tanvi Gupta, the global head of CLOs at 9fin and I'll be your host for the day. In this episode, we will discuss the primary market and how to resolve the bottleneck. We will also use current CLO activity to explore alternative strategies, private credit and everything that presents itself as a new growth area. Joining me today to shed light on this is Redding Ridge Asset Management's Anjana Ravani. Anjana, if you don't mind introducing yourself to our listeners, please.
Anjana Ravani
First, thank you for having me, Tanvi. Great to be here. My name is Anjana Ravani, head of CLOs and corporate ABS for Redding Ridge. For anyone not familiar, Redding Ridge is an independently managed affiliate of Apollo. Today, we manage about $43.7 billion in AUM, largely comprised of BSL CLOs in the US and Europe. My focus is on our BSL issuance at Redding Ridge, in addition to supporting other CLO and securitization initiatives across the Apollo ecosystem.
Tanvi Gupta
Perfect. Let's lay the groundwork for CLOs first. On what's happening right now in the primary market, it seems to be muted activity, although we've started to see some new issues trickle through. What's the state of the market right now? What's happening?
Anjana Ravani
Sure. Maybe we can take a little bit of a step back to start. We are coming off two of the most prolific issuance years in the history of our market in 2024 and 2025. In 2025, Redding Ridge alone, we were in the market 36 times. And that kind of momentum continued into the first, call it, eight weeks or so of 2026.
Liabilities hit what were their all-time tights post-financial crisis. And we saw a good opportunity to take advantage of that. The market alongside us was quite prolific in printing. We saw a lot of value in locking in a cost of capital in the 140s and even the low 150s and creating long-term option value in those structures, which we talk a lot about, and which was still on the lower side of what we've historically underwritten. Since then, with more noise around potential disruption due to software or AI risk and more geopolitical tension, the market has widened, while on the loan side, it still costs 99 or higher to accumulate a portfolio that we're comfortable with from a risk standpoint. So that's slowed down new CLO creation, although we're starting to see that trend reverse a little bit.
I would say historically our market is good at correcting a supply-demand imbalance like this. With the widening that we've seen, the market largely took a pause from a new issue standpoint. The focus turned to refis and resets of deals from two years ago, done at wider liabilities, that were in the money to refi and reset. The dynamic there is interesting because those capital structures are in the money to address. Even with these wider liabilities, issuers have less pricing power than they would in a new issue transaction. So that has created some supply pressure on the market and, I would say, delayed the tightening that we're supposed to be seeing. It seems like some of that supply pressure is easing. Investors clearly are looking for the new issue exposure.
Anjana Ravani
And I think we're going to start to see spreads tighten again.
Tanvi Gupta
What's been the AAA investor sentiment through all this? We seem to be in a price discovery mode. Is there specific feedback that you're hearing on where the levels should be?
Anjana Ravani
I think what has caused a little bit of confusion maybe is the term curve, where you saw a lot of supply of the shorter-dated, call it three-year reinvestment period refis, along with five-year new issues and resets. Where are those supposed to price relative to each other? What is the value of having one year of non-call versus two? And when you have a lot of supply in the shorter-dated part of the curve, it actually caused it to invert a little bit. But again, I think the supply of that profile is going to slow down as the market has fewer and fewer in-the-money deals to refi in that manner. So I think we'll see a normalization over the next few weeks.
Tanvi Gupta
And how should the market resolve the bottleneck? I know it's easing up a little bit, but it still doesn't feel like the primary market, the one that we're more familiar with. So how should the market resolve this?
Anjana Ravani
I think it just means continued discipline from the issuers. If supply remains light, liability spreads will continue to tighten because investors who are axed to source clean, high-quality, new issue transactions are going to have to pay tighter spreads. That will eventually lead to a normalization in the supply-demand dynamic.
Tanvi Gupta
And speaking of equity, there's a lot of discussion on the arb not working right now. How has that affected primary activity? What's happening there?
Anjana Ravani
Yeah, I think one thing that we say is the spot arb at any given time is not a great predictor of long-term performance of equity. What we tend to place more value on is what kind of optionality we're creating in the structure, either from what we were doing earlier this year in tighter liabilities in longer-tenor structures, or you've seen in some other markets where you're able to source assets at deeper discounts. And there's option value from the pull to par. So I think in this type of environment, if you go back to an environment like earlier this year and many parts of last year, there's still a lot of value to be created in equity due to that longer-dated option.
Tanvi Gupta
And captive equity has had a monumental impact on CLO issuance and the primary market. How have managers capitalized on it, either now or over the last couple of years?
Anjana Ravani
Yeah, I think the market has experienced a structural shift over the past several years. Part of it was accelerated by U.S. risk retention rules. But even beyond that, I would say over the last 10 years or so the market shifted from managers sourcing equity on a deal-by-deal basis to now the vast majority of managers putting in place some sort of programmatic equity strategy, whether it's capital from their own balance sheet, setting up a dedicated vehicle or fund, or some combination of the two. I would say as an investor in one of these vehicles or strategies, you are accessing equity that's issued over many vintages. And then you get the benefit of the long-term performance of equity, and you get diversification across vintages, across markets and potentially geographic diversification as well.
Tanvi Gupta
Captive equity hasn't always been the most popular kid on the block in terms of questions on manager priorities and the returns versus third party equity returns. What's your view on that? Like, are these misconceptions?
Anjana Ravani
I think so. You're right that there's sometimes a perception that managers with their own equity don't care about the arb or returns. But if that were the case, you would see more deals in the market right now, because there are more managers with equity than there are managers in the market right now by a fair amount. I think most managers who are scaled in this business are continuously fundraising and relying on their existing base of LPs to participate in subsequent raises. So there's continuous accountability to the LPs and demonstrating that you're delivering what you said you were going to.
Tanvi Gupta
And how do the various captive equity funds differentiate? As we talked about, practically all of the managers are now raising their own captive equity funds. Are you seeing any innovative structures or tactics coming out in the space?
Anjana Ravani
Yeah, I think there are a number of ways that a manager can differentiate its strategy. One example would be having the ability to access the U.S. and Europe. In addition to providing geographic diversification, it gives the manager flexibility to allocate based on relative value between the two regions because it does shift from time to time. I would say another differentiator is the ability to participate in the secondary market and/or in third-party equity.
I would say one thing the market tends to do is take our point-in-time environment and extrapolate that onto the entire lifecycle of the CLO. So in a benign environment, the market can start relaxing assumptions, putting a lot of value on refi or reset optionality and arguably even overvaluing it. And then in environments like today, where we've had a higher incidence of idiosyncratic credit events along with spread compression, the assumptions suddenly get a lot more punitive. And that causes volatility in marks and trading levels for CLO equity. So it's certainly a return enhancer for a fund to be able to supplement its more programmatic primary issuance with some opportunistic secondary trading.
Tanvi Gupta
And stepping away from our regular way CLOs for a bit, infrastructure CLOs have been gaining popularity. Why is this an exciting growth opportunity at the moment?
Anjana Ravani
Yeah. You're right that we have identified infrastructure as an exciting growth area for our market. From the perspective of a manager, there is a lot of white space. You've seen a handful of managers having been able to access the market, but there is definitely room for more managers to enter the space, especially when the piping already exists to manage a CLO structure.
From the investor side, if you're an investor in any part of the structure, we see infrastructure as a higher-quality, lower-volatility product that really is a great complement to other BSL or private credit exposures you may already have. I think taking high-quality assets and putting non-recourse term financing makes a lot of sense in general. This is a situation where you put a CLO structure on these assets and let the leverage do the work for you.
Tanvi Gupta
And what's the value proposition for investors looking to underwrite the asset class?
Anjana Ravani
Yeah. Talking about infrastructure more broadly, the capital need in the infrastructure space is massive, whether you're talking about energy transition, AI infrastructure, reshoring or traditional infrastructure. We estimate at Apollo that it's a 75 to 90 trillion dollar capital need that public markets are not going to be able to meet alone. So CLOs are a very natural provider of liquidity for this asset class.
I think for a CLO investor, infrastructure is higher quality, lower loss rates and higher recoveries. It's a good, lower-volatility complement or ballast to your existing BSL or private credit exposure. Pricing today, interestingly, sits somewhere in between broadly syndicated and middle market CLOs. I would expect as more issuers enter the market and we create more of this product, that pricing will converge closer to BSL over time.
I would say the investor base today isn't as deep as it is for BSL, for example, partly because there isn't as much issuance today as there could be. And so I think more investors will see the increased pace of issuance and find it worthwhile to underwrite the asset class for their portfolios.
Tanvi Gupta
And then when it comes to the portfolio composition for these infrastructure CLOs, what type of loans are we talking about? Because there's a varying degree of what type of infrastructure CLOs we've seen so far. So what composition are you looking at?
Anjana Ravani
Sure. The infrastructure CLOs that we have seen to date have included a mix of corporate broadly syndicated loans from a subset of infrastructure focused industries and a handful of project finance loans. The BSL portion tends to be lower spread assets that tend to trade around par. So not necessarily accretive to your headline equity arb, but really acts as a diversifier so that we can finance these structures efficiently.
And I think that's honestly been a bit of a limiter to the size of the market, which is really the access to the project finance and more of the originated loans. That's where the deals you've seen done to date have had a smaller component of originated assets. And that's where we see the white space for new entrants, where if you do have access to origination and combine that with the syndicated portion of the portfolio, and the underwriting is done consistently across those two sleeves, that's where we think new entrants are going to be able to scale.
Tanvi Gupta
And is there a distinction between, say, middle market loans or private credit loans in these types of infrastructure CLOs? Would you say that infrastructure CLOs will largely have middle market loans rather than private credit loans? Will it be the one-to-one origination, that kind of thing? Or is it more?
Anjana Ravani
I would say it probably depends on who the manager is. But the infrastructure that we're looking at would be larger cap, not middle market, but comparable in size to the BSL component.
Tanvi Gupta
OK, gotcha. Data center loans have been a topical subject recently. Is this coinciding with the demand for infrastructure CLOs, or would you consider them for infrastructure CLOs? And what are the caveats, if so?
Anjana Ravani
I mean, I think there's definitely a place for data center loans as part of a broader infrastructure portfolio.
Tanvi Gupta
Any caveats?
Anjana Ravani
Yeah. Could an infrastructure portfolio include data center loans? Yes, so long as it meets all of the other requirements and it still has to be suitable for the CLO structure.
Tanvi Gupta
OK, so what's the lay of the land in the private credit market right now? How are you taking advantage of the sell-off and everything else that's going on in the private credit space?
Anjana Ravani
Sure. Maybe we can take a second to define what we're talking about when we say private credit, because at Apollo, the way we define private credit is as a 40 trillion dollar addressable market, of which 38 trillion approximately is investment grade, whether that's corporate lending, real estate, infrastructure, aviation, trade finance, etc. And really the other two is sub-investment-grade direct lending. So both of those numbers are correct when you say, what's the size of the private credit market? They're talking about slightly different things. So I think what you're referring to here is the sub-IG direct lending market.
Tanvi Gupta
Yes. So how are you taking advantage of the sell-off that's happening?
Anjana Ravani
What I would say is that if you take a look at the broadly syndicated market, it's mature, liquid, transparent. You can have anywhere from three to 12 quotes on any loan that's in a CLO at any point in time. I think the opportunity is to bring that level of transparency to the private credit market.
And that's the reason I think maybe you've seen some of the traditional lenders to that space pull back: investors are taking a bit of a pause to re-underwrite what's in their portfolios. What are my exposures? Where does my risk really lie? And we welcome that. I think that's going to create dispersion amongst the private credit managers, and that will lead to opportunities in itself.
Tanvi Gupta
Is there more reliance on CLOs now to provide liquidity to the private credit asset class as opposed to BDCs?
Anjana Ravani
Yeah. If you look at how a private credit vehicle or BDC generally funds itself, it has a handful of tools in the toolkit. That includes accessing the unsecured debt issuance market. It includes bank ABLs. It includes issuing corporate revolvers. And finally, CLOs have been a growing part of that toolkit over the last few years based on the attractiveness of the financing that they offer. So for right now, if some of these other funding sources are less available, then yes, it's natural to assume that CLOs will become a part of the toolkit that managers rely on a little bit more heavily in the near term.
Tanvi Gupta
And how do CLOs fit into the funding picture for private credit?
Anjana Ravani
Yeah. They've grown in popularity due to the cost and the efficiency of the structure. Managers are trying to balance their secured and unsecured funding sources. So CLOs fit really nicely into that secured financing bucket.
Tanvi Gupta
And PIK assets have been a topic of discussion of late, too. So are there nuances to this between what are PIK assets and what are PIKable assets? How are you navigating through this?
Anjana Ravani
Absolutely. There is a very important distinction to be made when you talk about PIK. There is what we call PIKable or PIK toggle assets, where it became the case that a lot of the higher-quality borrowers over the last few years have been able to access a PIKable feature in their documents just because that's what the market was offering.
But in a lot of those instances, they're only allowed to exercise that option for the first couple of years. And they're still required to pay a large portion of the coupon in cash. Call it, they're not allowed to defer more than half of the spread component of their coupon. That's very different from borrowers who are actually exercising their PIK option and not paying in cash. So one metric that we think is important to look at is how much of a portfolio is actually PIKing, how much of the income is in accrual form versus cash, which is one metric we think investors should be looking at.
Tanvi Gupta
Okay, great. So we've covered a lot on this podcast, and to tie it all into a nice little conclusion, considering you're focused on many different areas, what are you going to be focused on and how are you planning on navigating the volatility? I know it's getting harder to predict for longer than a few months, so this is more of a near-term focus area.
Anjana Ravani
Sure. Maybe just taking a step back and reflecting, I'm actually coming up on 19 years in the CLO market, dating myself now. And I don't know that we ever could have predicted what a sizable, indexed, mature asset class this has become. So one, it's exciting to continue to participate in the growth of this asset class and then also see how and where we can apply this technology in some new and differentiated ways.
Tanvi Gupta
Amazing. Thanks so much, Anjana, for taking time out and joining us today.
Anjana Ravani
Thanks so much for having me.