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Riskiest CLO Pieces Signal Years of Corporate Pain Ahead

July 16, 2020, 10:00 AM

The riskiest parts of the $700 billion collateralized loan obligation market are signaling a tough road ahead for U.S. companies, with a wave of bankruptcies potentially spanning years.

Investments known as CLO equity have lost a quarter of their value this year, and asset managers including Oaktree Capital Management and Gateway Credit Partners are skeptical that they will turn around anytime soon. The instruments are the first to sustain losses when the debt backing CLOs -- risky loans to highly leveraged companies -- starts going bad.

If a surge in bankruptcies lasts for just a year or two, as in...

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