CLO Market Freeze Threatens Corporate Debt Refinancing as Fed Keeps Rates High
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The $1.3 trillion CLO market fueled by cheap leveraged loans is freezing up as the Fed keeps rates high. This hurts the economy by making it harder for companies to refinance debt.
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CLO issuance has plummeted, with 40% of issuers unable to price new deals this year. Banks have lost appetite for AAA CLO tranches.
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The CLO market helped fuel the private equity boom by bundling up risky corporate loans. Now new deals are stalling with demand falling.
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Companies face $500 billion of loan refinancings in the next 3 years. Without CLO demand they will struggle to roll over debt.
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Private credit is stepping in but unlikely to fully replace shrinking CLO market capacity. A leveraged loan and M&A rebound still looks distant.