(Bloomberg) -- Carlyle Group Inc., KKR & Co. and Oaktree Capital Management are among the money managers hoping to pounce on US leveraged loans increasingly selling at bargain prices.
The three firms are considering buying loans and packaging them into bonds known as collateralized loan obligations, according to people with knowledge of the matter. Many other fund managers are looking at doing the same: They’ve set up a near-record number of short-term lines of credit, known as warehouse lines, to purchase loans for CLOs, with about 286 open as of last count, according to strategists at Barclays.
“The opportunity is getting a little more exciting,” said Dagmara Michalczuk, co-chief investment officer at Tetragon Credit Partners, which invests in CLO equity. “A lot of folks are deciding to pull the trigger at the moment.”
Loans are relatively cheap now. More than 90% were trading at a discount to face value earlier this week, a higher share than any time in almost 18 months, according to strategists at JPMorgan Chase & Co. Later this week, that figure edged closer to about 85%, still an elevated level. Spreads on the debt are sitting near their widest of the past year.
The fear in the $1.5 trillion leveraged loan market is that higher borrowing costs and inflation will strain the weakest companies, triggering defaults. Even companies that might be less vulnerable are now getting caught up in those worries, said Ian Gilbertson, co-head of US CLOs at Invesco.