Macro Hive Conversations With Bilal Hafeez Ep. 329: Shiloh Bates on CLO Risks, Private Credit and Macro Read-Through
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Oct 10, 2025 
Shiloh Bates, Partner and CIO at Flat Rock Global, brings two decades of experience in CLO and private credit investing. He shares insights on the rapid growth of private credit, noting its appealing yields and lower volatility. Bates also delves into the trends of covenant-lite lending and how it impacts credit agreements. He discusses the industry concentration in CLOs, primarily in tech and healthcare, alongside how refinancing and defaults shape CLO returns. Additionally, he explains the implications of Fed easing on the market and what investors should keep an eye on.
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How CLOs Work
- A CLO is a diversified, securitized pool of senior secured loans that finances itself by issuing rated tranches and an equity tranche.
- CLO equity captures excess spread but bears first-loss risk from loan defaults and targets mid-teens returns under normal loss assumptions.
Why Private Credit Grew
- Private credit growth stems from attractive risk-adjusted yields: roughly SOFR +5% today, equating to about 9% absolute yield.
- Those yields are senior secured and lower volatility, making private credit appealing versus equity for many investors.
Prioritize Documentation Over Covenant Counts
- Focus on strong loan documentation and full asset pledges rather than only counting financial covenants when evaluating private credit deals.
- Ensure the credit agreement prevents asset movement and dividend leakage to protect lender recovery rights.
