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Hedge Fund Sold CLOs to BofA at 80% Discount Amid Cash Squeeze

  • Sale involved European collateralized loan obligation equity
  • Riskiest part of CLOs hurt by downgrades to underlying loans
Bank of America Corp. Locations Ahead of Earnings Figures
Photographer: Mark Kauzlarich/Bloomberg

In one of the more desperate acts of the coronavirus-fueled credit crunch, a hedge fund last month sold about $100 million of European collateralized loan obligations for about a fifth of their face value, according to people with knowledge of the matter.

The hedge fund offloaded stakes in the lowest-rated tranches of European CLOs to a small group of banks including Bank of America Corp., said the people, asking not to be identified because the information is private. Trading in CLO equity has been sparse in recent weeks, with U.S. deals seen anywhere between 20 to 80 cents on the dollar, depending on the quality of the collateral pool, market participants said. European CLO equity prices are similarly marked, though the range could be tighter, one of the people said.