The market for collateralized debt securities, backed by risky high-yield loans, is about to reopen after a one-year hiatus.
A $500 million fund underwritten by Citigroup will again open the door for CLOs, or collateralized loan obligations, which are structured
deals that package loans.
The offering would mark the first new issue backed by widely syndicated loans in the $440 billion market for CLOs since last March, Bloomberg reported.
Before this deal, investors were still scared away by the huge losses suffered during the subprime mortgage fiasco that began in 2007.
The new issue represents a sign of the times in financial markets.
With money-market rates near zero and a modicum of stability having returned to the financial system, investors are scouring for yield any place they can find it.
So, they’re snapping up everything from the safest municipal bonds to the riskiest junk bonds.
As for the new CLO issue, “This is the first baby step to getting the market going again,” Matt Natcharian, head of Babson Capital Management’s structured credit team, told Bloomberg.
“There is a decent amount of investor interest throughout the capital structure and there are managers that want to do deals.”
Major banks are soliciting leveraged loan funds managers to entice them to issue CLOs, sources tell Bloomberg.
But the offerings may be coming at just the wrong time. Starting in 2012, more than $700 billion in high-yield (junk) corporate debt will come due, and experts are concerned that a lot of this debt could turn sour.
“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” Kevin Cassidy of Moody’s Investors Service told The New York Times.
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