Money managers including KKR get ready to snatch up bargain leveraged loans
Loans are relatively cheap now, with over 90% trading at a discount to face value earlier this week
Money managers, including Carlyle Group, KKR, and Oaktree Capital Management, are gearing up to buy discounted leveraged loans in the US market, according to sources. These loans are trading at a discount to face value, with over 90% of them trading at a discount earlier this week. Many fund managers are setting up short-term lines of credit to purchase these loans for collateralised loan obligations (CLOs).
The opportunity for CLO managers has become more attractive as the sell-off has broadened to include higher-quality loans. While the demand for loans from CLOs could benefit some companies needing financing, the returns on higher-risk CLO securities are low. The CLO arbitrage, or the gap between what the vehicle earns and what it pays out, has also widened slightly, making CLO equity more appealing.
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