The Phaserl


Junk Bond Crisis Starts To Metastasize

from Dollar Collapse:

With junk bonds finally reverting to their intrinsic value, the question on everyone’s mind is “what blows up next?” Here’s the first in what might be a long, painful list:

CLOs Hammered as Energy Rout Plays Havoc With Other Markets

The bust in commodities that’s roiling junk bonds is also taking its toll on funds that bundle corporate loans used to finance buyouts.

The riskiest slices of collateralized loan obligations raised after the financial crisis plunged 9 cents on the dollar since September to about 58 cents at the end of last month, down from 84 cents a year ago, according to JPMorgan Chase & Co.

Intensifying price declines in recent months have led to one of the “more challenging years in recent memory,” JPMorgan analysts Rishad Ahluwalia and Jacob Kurosaki wrote in a Dec. 11 note to clients.

CLOs Dec 15

CLOs purchase high-yield, high-risk loans and bundle them into securities of varying risk and return. Investors in the lowest-ranked CLO slices, also called the equity tranche, are first in line to absorb any potential losses. The sell-off comes amid concern about the creditworthiness of speculative-grade borrowers as volatility spreads beyond the energy sector.

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