Sept. 3 (Bloomberg) -- BlackRock Inc., the biggest publicly traded U.S. asset manager, is seeking as much as $3 billion for a fund to buy loans that banks are selling for losses, said two investors with knowledge of the matter.

BlackRock Credit Investors II will invest in leveraged- buyout loans that banks are trying to unload after the collapse of the subprime-mortgage market drove investors away from all but the safest securities, the investors said. Last year, New York- based BlackRock raised $3 billion for its first such fund.

``As a result of the credit dislocation, there have been quite a few investment opportunities,'' said Jay Fewel, a senior equities investment officer at the $75 billion Oregon State Treasury, which will put $100 million into the new BlackRock fund. ``When the economy is in a downturn, these investments perform extraordinarily well.''

BlackRock, which manages $1.4 trillion in assets, is trying to profit from buying loans banks agreed to make during a two- year leveraged-buyout boom that ended with the credit crisis dating from last August. Blackstone Group LP's GSO Capital Partners and Oaktree Capital Management LP also started funds as banks cut prices to unload debt from their balance sheets.

Brian Beades, a spokesman for BlackRock, declined to comment on the new fund.

BlackRock, led by Chief Executive Officer Laurence Fink, has opened a number of funds to benefit from the turmoil in the credit markets. Investors poured $24.2 billion into BlackRock's funds in the second quarter as its funds sidestepped the worst of the subprime-mortgage collapse and some stood to benefit from investments in distressed debt, residential mortgages and loans.

Managers

The new BlackRock fund will be managed by Mark Williams, who heads BlackRock's bank-loan investment team, and James Keenan and Kevin Booth, who are co-heads of the high-yield investment team within BlackRock's bond unit.

BlackRock has teamed up with Boston-based hedge-fund firm Highfields Capital Management LP to start a company and raise $2 billion to buy delinquent home mortgages. BlackRock was picked by the U.S. Federal Reserve to manage the $30 billion portfolio of Bear Stearns Cos. and bought $15 billion in mortgage bonds from UBS AG in May.

Leveraged-loan prices tumbled to a record low of 86.3 cents on the dollar in February, from above face value in June 2007. Since hitting the low, the prices have inched up to 88.45 cents on the dollar, according to Standard & Poor's.

The issuance of repackaged leveraged loans known as collateralized loan obligations has fallen 78 percent this year compared with 2007, helping loan prices stay near record lows. CLOs were the largest buyers of leveraged loans before the credit crunch.

Fewer Deals

Announced private-equity deals worldwide so far this year have fallen 76 percent from the same period last year to $182 billion, according to data compiled by Bloomberg.

Banks are trying to unload loans and distressed assets after taking $509.6 billion in credit losses and asset writedowns since the beginning of 2007.

Deutsche Bank AG and Citigroup Inc. are among the banks that have sold leveraged loans at discounts to reduce a backlog of $230 billion in loans committed to LBO firms for acquisitions before credit markets seized up. The sales have helped reduce the backlog to about $45 billion, CreditSights Inc. wrote in an Aug. 20 report.

GSO Capital Partners, the hedge-fund manager purchased by New York-based Blackstone in March, bought $7.8 billion of leveraged loans from banks at around 85 cents on the dollar during the second quarter.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.

Last Updated: September 3, 2008 12:23 EDT