Besieged by investor withdrawals, mutual funds that invest in risky corporate loans have been unloading big chunks of loans in recent days.

The selling is driving down prices to levels not seen in more than two years and forcing banks to keep some of the unwanted debt on their balance sheets.

Lord, Abbett & Co. and Eaton Vance Management are among the fund managers selling holdings to meet redemption requests and build up cash reserves, according to people with knowledge of the market, who asked not to be identified discussing a private matter. In just the past four trading days, investors have pulled $2.2 billion from all loan mutual funds and exchange-traded funds. That brings withdrawals from the asset class to almost $9 billion since mid-November, data from JPMorgan Chase & Co. and Lipper show.

Investors have turned sour on the loans amid a more dovish outlook for upcoming Federal Reserve rate hikes and global economic jitters. It’s a stark contrast to earlier this year, when investors flocked to the market in pursuit of floating-rate assets.

The plunging debt prices are making it difficult for banks to offload loans they’ve underwritten but not yet sold to investors. Lenders including Wells Fargo & Co., Barclays Plc and Goldman Sachs Group Inc. have taken the rare step of holding on to the loans -- which are typically made to finance buyouts -- with the hope that they can resell them to investors later.

“There’s been a massive amount of volatility since October, so from a credit risk standpoint investors are being a lot more critical of what’s going on,” said Jody Lurie, a corporate credit analyst at Janney Montgomery Scott.

‘Record Volumes’

Scott Page, co-director of floating rate loans for Eaton Vance, acknowledged that retail investors have been withdrawing assets from loan funds in general, but said that institutions remain buyers. “Credit conditions haven’t changed amid the recent few weeks of outflows,” he said in an email. “We’re seeing record trade volumes and there’s a buyer for every seller.”

A spokesman for Lord Abbett said the firm raised its liquidity target in November because of uncertainty around Fed policy and the general risk-off environment, and is hoping to find bargains now.

Both firms didn’t comment specifically on their recent selling activity.

The reversal in leveraged loan sentiment came quickly. The debt had gained around 4 percent this year through the end of September, making it one of the best performing parts of credit markets. Now gains are closer to 1.4 percent for the year. Prices for loans fell to a nearly three-year low of 94.9 cents on the dollar on Tuesday, as lower stock and energy prices have sapped investor appetite for risk.

Some high-profile loan deals have suffered: $2.9 billion of loans borrowed by Apollo-owned Rackspace Hosting are now quoted at about 89 cents on the dollar, declining steeply since late September. A $6.5 billion loan sold in September by Blackstone to buy a stake in Thomson Reuters Corp.’s financial terminal division is now quoted at 95.6 cents.

It’s all added up to a tough time for banks trying to sell risky loans used to fund buyouts ahead of the transactions closing. They’re offloading the debt at steep discounts with sweeter terms and -- in some cases -- they have opted to hang onto the loans themselves as they wait for the market to improve.

Blue Racer

A group of banks led by Goldman Sachs had to hold onto a $500 million loan backing the acquisition by First Reserve, a private equity firm, of a stake in Blue Racer Midstream LLC, a pipeline operator, people familiar with the matter said. A mix of direct lenders and infrastructure funds have expressed interest in the debt and Goldman is now likely to sell the loan to a small group of buyers separate from the syndicated market, one of the sources said. Barclays and RBC are also involved.

That delayed transaction, combined with others, means the banks will have to bear the risk of the loan prices falling further, as well as costs associated with holding the debt on their balance sheet. With junk bond offerings also slowing down, the performance of leveraged finance businesses will likely lag at Wall Street biggest banks, weighing on their earnings, said David Hendler, founder of Viola Risk Advisors LLC.

“It’s another Debbie Downer for bank earnings,” Hendler said. 'Investment banking revenue was already facing difficulties from volatility, geopolitical risks, China tariffs and Brexit, so now throw this into the mix.”