CLOs Have Too Much Money and Are Running Out of Things to Buy
- Leveraged loan issuance isn’t keeping up with demand from CLOs
- CLO managers are increasing their bond holdings to compensate
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The $1.3 trillion collateralized loan obligation market is about to become a victim of its own success because managers can’t create the bonds fast enough to meet demand and are running out of things to buy.
A slowdown in mergers and acquisitions after borrowing costs rose is continuing to deprive the lenders of the leveraged loans that the industry was built on. About $311 billion of M&A deals have been announced and completed so far this year, roughly $1 trillion below the same level two years ago when interest rates began to rise, according to data compiled by Bloomberg.