Carlyle, KKR and Oaktree Eye Discounted US Leveraged Loans for CLO Packaging
Carlyle, KKR and Oaktree Capital Management are weighing purchases of discounted US leveraged loans to repackage into collateralised loan obligations, according to a report by Bloomberg. The strategy targets a broad market sell-off that has pulled prices down across the $1.5tn sector.
Warehouse Credit Lines Reach Near-Record Totals
Asset managers have established approximately 286 warehouse credit lines to accumulate loans ahead of CLO issuance, according to Barclays strategists. This total sits near record levels as firms position themselves to snap up discounted debt. Loan prices weakened materially earlier in the week, with more than 90% of leveraged loans trading below face value before that share eased toward 85%. Spreads remained close to their widest levels in a year.
Default Concerns Offset New-Issue CLO Sales
The wave of discounted debt comes against a backdrop of caution among investors. Market participants remain concerned that elevated borrowing costs and persistent inflation could drive up default rates across the $1.5tn leveraged loan market. US new-issue CLO sales reached $139.2bn through Thursday, marking a decline of more than 16% compared with the same period year-on-year. While improving returns for CLO equity investors could eventually support higher issuance volumes, distributions remain relatively low by historical standards.
Frequently Asked Questions
Why are private equity firms targeting leveraged loans right now?
Managers at firms like Carlyle, KKR and Oaktree are taking advantage of a market sell-off that has widened from stressed borrowers to higher-quality companies, creating acquisition opportunities for firms with CLO capacity.
How many warehouse credit lines have managers established?
Barclays strategists report that asset managers have set up approximately 286 warehouse credit lines to accumulate loans ahead of CLO issuance.
What is the total volume of new-issue CLO sales so far?
US new-issue CLO sales reached $139.2bn through Thursday, reflecting a year-on-year decline of more than 16% amid investor concerns over high borrowing costs and inflation.