Leveraged loans

Stakeholders in a $1.5B term loan (which include CLO managers) overwhelmingly approved the failed energy company's voluntary bankruptcy plan, providing them a 76% pro-rata share of new common stock in the company after it emerges from bankruptcy.

Money managers including Owl Rock Partners, Pretium and PGIM are racing to add workers with restructuring and bankruptcy experience as they take in record amounts of cash to buy cheap assets battered by the economic fallout of the coronavirus pandemic.

Restricted from taking on distressed debt or debtor-in-possession loans, CLO managers are being left out of opportunities in coronavirus-related debt restructurings. "It's frustrating," says one manager. "We are supposed to be the bully, not the one being pushed around.”

Leveraged loans and collateralized loan obligations do not represent an "existential" threat to the global economy or to the U.S. banking system, as some recent highly charged reports have suggested.

The leveraged loan market, long favored by private equity firms to fund LBOs, has lagged. The largest buyers of the debt - vehicles known as collateralized loan obligations - are not purchasing as much as they used to as they deal with the wave of downgrades that has hit many of the companies they already hold.

The firm will offload parts of its business including its business development company, Garrison Capital Inc., and other credit vehicles.

“Since April, the decline in corporate credit has resulted in a significant number of downgrades among the assets underlying some CLOs,” a Moody’s press release stated on Wednesday.

Shut out from many coronavirus relief programs, private equity companies have found a back door at HHS, where they have borrowed at least $1.5 billion.

A New York judge last week dismissed a claim that a leveraged loan JPMorgan Chase & Co. and other Wall Street banks sold in 2014 could be considered a security and, as such, be subject to the same disclosure requirements as stock and bond offerings.

In a report issued Tuesday, the ratings agency notes that 1,287 companies as of April 28 faced prospects of potential debt and issuer downgrades, impacted by the coronavirus outbreak and a virtual shutdown of the global economy this spring.