Oct. 28 (Bloomberg) -- Barclays Plc, the U.K.'s second- largest bank, is selling $970 million of assets primarily consisting of high-yield, high-risk loans, according to people with knowledge of the auction.

Barclays asked banks including Credit Suisse Group AG and JPMorgan Chase & Co. to run the sale, said the people who declined to be named because the transaction hasn't been publicly announced. Bids are due today, the people said.

Banks and investors sold a record $2.3 billion of high- yield debt in the first three weeks of October because of clauses in funds' borrowing agreements that require them to raise money when prices drop below a set level, according to Standard & Poor's. The loan sales contributed to prices plunging to a record low 66 cents on the dollar last week from 88.5 cents at the beginning of September, according to S&P LCD, which earlier reported the Barclays sale.

Brandon Ashcraft a Barclays spokesman in New York declined to comment. Brian Marchiony, a spokesman for New York-based JPMorgan didn't return calls seeking comment and Bruce Corwin at Credit Suisse in New York said he couldn't immediately comment.

High-yield, or leveraged, loans are graded below Baa3 by Moody's Investors Service and below BBB- by S&P.

The Barclays' loans for sale were linked to derivative contracts owned by Black Diamond Capital Management LLC, according to the people with knowledge of the sale. The hedge fund filed a lawsuit against Barclays on Oct. 17 demanding the return of $302 million of collateral tied to the contracts, the lawsuit said.

BDC Finance LLC, one of Greenwich, Connecticut-based Black Diamond's funds, demanded on Oct. 6 that Barclays return excess collateral the bank held, according to the filing in New York State Supreme Court in Manhattan.

On Oct. 14, BDC terminated the transactions, according to the complaint. The lawsuit is ``without merit'' and Barclays will fight it, Ashcraft said in an e-mailed statement yesterday.

To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net

Last Updated: October 28, 2008 09:58 EDT