Riskiest CLO Funds Are Flashing a Warning Sign: Credit Weekly

Fear of rising defaults is spreading from the leveraged loan market to some of the retail funds that ultimately buy the debt as investors get choosier about taking on credit risk.

The biggest buyers of leveraged loans are money managers that bundle the debt into bonds known as collateralized loan obligations. Some retail funds that buy the riskiest parts of CLOs, known as CLO equity, are slashing their dividends as loan yields fall and anxiety about future defaults mounts.

Investors are responding by heading for the exits. Share prices of a handful of closed-end funds, including ones backed by ...