Carlyle, KKR and Oaktree Capital Management are considering buying discounted US leveraged loans to package into collateralised loan obligations (CLOs), according to a report by Bloomberg.
Managers have established approximately 286 warehouse credit lines to accumulate loans for CLOs, a near-record total, according to Barclays strategists. More than 90% of leveraged loans traded below face value earlier in the week before that share eased towards 85%, while spreads remained close to their widest levels in a year.
The sell-off has spread from stressed borrowers to higher-quality companies, creating opportunities for managers to acquire loans at discounts. However, investors remain concerned that elevated borrowing costs and inflation could increase defaults across the $1.5tn market.
US new-issue CLO sales reached $139.2bn through Thursday, down more than 16% year on year. Improving returns for CLO equity investors could support issuance, although distributions remain relatively low by historical standards.
