We Can’t Give You a Loan, CLO Managers Told Now Bankrupt Deluxe

When Deluxe Entertainment Services Group Inc. was struggling to stay afloat earlier this year, its lenders wanted to give it money. But their investment rules blocked them, a twist that could have a wide-reaching impact on distressed U.S. companies.

The lenders in this case were collateralized loan obligations, or groups of loans that asset managers package into bonds. Those investment firms are increasingly powerful in debt markets and have strict rules limiting when they can give more money to troubled borrowers. In the case of Deluxe, an ill-timed ratings downgrade prevented CLO managers from fronting more cash.

When Deluxe sought ...