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Riskiest CLO Pieces Signal Years of Corporate Pain Ahead

  • The billion-dollar question: Will this be 2001 or 2008?
  • Investors fear this downturn will be similar to early aughties

Source: Getty Images

The riskiest parts of the $700 billion collateralized loan obligation market are signaling a tough road ahead for U.S. companies, with a wave of bankruptcies potentially spanning years.

Investments known as CLO equity have lost a quarter of their value this year, and asset managers including Oaktree Capital Management and Gateway Credit Partners are skeptical that they will turn around anytime soon. The instruments are the first to sustain losses when the debt backing CLOs -- risky loans to highly leveraged companies -- starts going bad.