Key Takeaways
- • Carlyle, KKR and Oaktree Capital Management are considering buying discounted US leveraged loans to package into collateralised loan obligations (CLOs), according to Bloomberg.
- • Managers have established approximately 286 warehouse credit lines to accumulate loans for CLOs, a near-record total, per Barclays strategists.
- • More than 90% of leveraged loans traded below face value earlier in the week, easing toward 85%, with spreads close to their widest levels in a year.
- • US new-issue CLO sales reached $139.2bn through Thursday, down more than 16% year on year.
- • Investors remain concerned that elevated borrowing costs and inflation could lift defaults across the $1.5tn leveraged loan market.
Summary
Carlyle, KKR and Oaktree Capital Management are weighing purchases of discounted US leveraged loans to repackage into collateralised loan obligations (CLOs), according to a report by Bloomberg. The move reflects a sell-off in the leveraged loan market that has widened from stressed borrowers to higher-quality companies, creating acquisition opportunities for managers with CLO capacity.
According to Barclays strategists, managers have established approximately 286 warehouse credit lines to accumulate loans ahead of CLO issuance, a near-record total. Loan prices have weakened materially: more than 90% of leveraged loans traded below face value earlier in the week, a share that eased toward 85%. Spreads remained close to their widest levels in a year.
The discount environment comes against a backdrop of caution. Investors remain concerned that elevated borrowing costs and inflation could increase defaults across the $1.5tn market. New-issue CLO sales totaled $139.2bn through Thursday, down more than 16% year on year.
The outlook for issuance may improve if returns for CLO equity investors strengthen, the article notes, though distributions remain relatively low by historical standards.
According to Barclays strategists, managers have established approximately 286 warehouse credit lines to accumulate loans ahead of CLO issuance, a near-record total. Loan prices have weakened materially: more than 90% of leveraged loans traded below face value earlier in the week, a share that eased toward 85%. Spreads remained close to their widest levels in a year.
The discount environment comes against a backdrop of caution. Investors remain concerned that elevated borrowing costs and inflation could increase defaults across the $1.5tn market. New-issue CLO sales totaled $139.2bn through Thursday, down more than 16% year on year.
The outlook for issuance may improve if returns for CLO equity investors strengthen, the article notes, though distributions remain relatively low by historical standards.
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