U.K. Crisis Spills Into U.S. Junk Debt

(Via The Wall Street Journal) — U.K. Crisis Spills Into U.S. Junk Debt

  • Collateralized loan obligation prices have been hit hard by a slump in the British pound and the unwinding of U.K. pension investments
  • Weakness in the CLO market may also have a knock-on effect on leveraged buyouts, including the financing for Elon Musk’s planned purchase of Twitter.

Fallout from the crisis in U.K. financial markets has hit a faraway corner of Wall Street: the trillion-dollar market for collateralized loan obligations.

Once a niche product, CLOs are now widely held by investors around the world, including the British pensions, insurers and funds that got caught by the recent crash in U.K. currency and government-bond markets. Many of them sold CLO bonds to meet margin calls, sending prices of the securities tumbling well below their intrinsic value, analysts and fund managers said.

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Some U.S. investment funds rushed to snap up the bonds at what they considered incredible bargains.

“It was the heaviest selling pressure we’ve ever seen,” said Tom Majewski, a managing partner at Eagle Point Credit Management, a Greenwich, Conn.-based investment firm specializing in CLOs. Eagle Point purchased about $80 million of CLO securities in the seven trading days ended Oct. 5, double the amount it would normally buy in a seven-day period, he said.

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