Leveraged Loan Extravaganza!

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May 22, 2007 6:19 pm

The substantial liquidity in the market reflects the dramatic
rise in collateralized loan obligation (CLO) issuance that has
increased demand for senior secured loans. U.S. CLO issuance through
mid-April reached $27 billion following a record $105 billion raised in 2006 according to JP Morgan Chase Bank, N.A.



The majority of the institutional market is dominated by CLOs and prime rate funds (),
accounting for nearly 70% of institutional market share. Hedge funds
and other specialist investors continue to be a growing class of
institutional investors and represent more than 20% of the
institutional market.





Fitch Ratings 1Q07 High Yield and Leveraged Loan Market Review



And who in turn is buying all the investment grade bonds that the CLO's
spew out? Because it's getting real hard to investment grade straight
debt.



Just like how ML is saying the Chinese market is out of control, Fitch
and other rating agencies are saying the same about the leveraged loan
market. These loans are the crouching tiger in many fixed income portfolios.



As Seth Klarman says...