Carlyle, KKR and Oaktree eye discounted U.S. leveraged loans for CLOs
Private credit and alternative asset managers are moving to capitalize on weakening prices in the U.S. leveraged loan market. The firms are weighing whether to buy discounted loans and repackage them into collateralized loan obligations, extending a broader push by fund managers to lock in cheaper assets for structured credit deals.
Highlights
- Carlyle, KKR, and Oaktree are evaluating buying discounted U.S. leveraged loans to create new CLOs amid falling prices.
- About 286 warehouse lines are currently open, signaling broad manager demand for leveraged loans ahead of potential new CLO issuance.
- Managers aim to capitalize on low loan prices by accumulating inventory for structured credit products, contingent on sustained supportive market conditions.
Managers position for new CLO issuance
As reported by Bloomberg, Carlyle Group Inc., KKR & Co. and Oaktree Capital Management are among the investors considering purchases of leveraged loans that are increasingly trading at bargain levels.The firms are evaluating whether to pool those loans into collateralized loan obligations, securities that bundle corporate debt into bond structures for investors. The strategy points to an effort to take advantage of lower loan prices while preparing fresh issuance in the CLO market.
Warehouse activity signals wider market interest
Interest in the trade extends beyond the three firms, with many other fund managers also exploring similar transactions. To support that activity, managers have established a near-record number of short-term financing facilities, known as warehouse lines, that are used to accumulate loans before CLOs are launched.Strategists at Barclays say about 286 warehouse lines are open as of the latest count, indicating broad demand for loan inventory despite pressure in the underlying market. The buildup suggests managers see scope to turn discounted corporate debt into new structured credit products if market conditions remain supportive.
Our earlier coverage of the IMF’s October forecasts on Europe’s uneven recovery highlighted that growth is proving more resilient in Germany, the UK, and Spain, while France continues to lag. We also noted that sticky inflation, limited fiscal room, and shifting competitiveness are key factors shaping credit sentiment and borrowing conditions across the region.
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