Non-investment grade corporate loans are in high demand, but financing to warehouse them for deals is scarce, so CLO managers are reaching into their tool boxes for something that hasn’t been used much since the financial crisis: delayed-draw funding.

Collateralized loan obligations issue bonds and use the proceeds to purchase a portfolio of noninvestment grade corporate loans. Managers want to acquire the collateral as quickly as possible in order to avoid paying interest on the bonds before they can collect interest on the loans.

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