Decline in Junk-Rated Loan Market, Amidst CLO Constraints and Economic Uncertainty

The $1.4 trillion market for collateralized loan obligations (CLOs) is experiencing a slowdown as borrowers face challenges arising from tighter financial conditions. CLOs—which hold about two-thirds of low-rated U.S. corporate loans—are reducing their activity due to purchase limits and the current economic climate, a dynamic that restricts financing options available to lower-rated corporate borrowers. Bank of America predicts that by the end of 2023, approximately 40% of CLOs will have exited their reinvestment periods, thereby reducing their demand for new loans. Read More