Take Junk Loans, Add Leverage, Slice ’Em Up, Sell, Repeat

Here’s a brain twister: Some investors have grown tired of junk-rated loans, but others are more eager than ever to buy the same debt bundled together and sliced into pieces.

Buyers are particularly hungry for the riskiest tiers of these collateralized loan obligations, investments that are the first to lose out if borrowers fail to make interest and principal payments. They also stand to reap bigger returns when companies pay back their loans.