Carlyle Group Inc., KKR & Co. and Oaktree Capital Management are among the money managers hoping to pounce on US leveraged loans increasingly selling at bargain prices.

By Rachel Graf, Scott Carpenter and Aaron Weinman Carlyle Group Inc. KKR & Co. The three firms are considering buying loans and packaging them into bonds known as collateralized loan obligations, according to people with knowledge of the matter. Many other fund managers are looking at doing the same: They’ve set up a near-record number of short-term lines of credit, known as warehouse lines, to purchase loans for CLOs, with about 286 open as of last count, according to strategists at Barclays.

“The opportunity is getting a little more exciting,” said Dagmara Michalczuk, co-chief investment officer at Tetragon Credit Partners, which invests in CLO equity. “A lot of folks are deciding to pull the trigger at the moment.”Loans are relatively cheap now. More than 90% were trading at a discount to face value earlier this week, a higher share than any time in almost 18 months, according to strategists at JPMorgan Chase & Co. Later this week, that figure edged closer to about 85%, still an elevated level. Spreads on the debt are sitting near their widest of the past year.

The fear in the $1.5 trillion leveraged loan market is that higher borrowing costs and inflation will strain the weakest companies, triggering defaults. Even companies that might be less vulnerable are now getting caught up in those worries, said Ian Gilbertson, co-head of US CLOs at Invesco.

“The weakness in October initially started in more stressed and lower-rated loans, but more recently we’ve seen the selloff broaden into higher-quality names, creating a more attractive opportunity for CLO managers to put capital to work,” Gilbertson said. “This has encouraged some managers to accelerate new CLO formation.”

The demand for loans from CLOs could be a positive for at least some companies looking for financing now, at a time when the Federal Reserve is expected to continue raising rates and funding is harder to come by. CLOs own about two-thirds of the leveraged-loan market, making them the single-biggest type of investor in the debt.

Carlyle, KKR and Oaktree are just some of the firms that have recently talked to investors about selling CLOs soon as managers move quickly to capitalize on what could be a fleeting opportunity, according to the people with knowledge. Representatives for Carlyle, Oaktree and KKR declined to comment.

A big constraint in CLO sales is returns on the riskiest CLO securities, known as equity. Distributions for CLO equity have generally been falling for some time, but are averaging 2.8% this quarter, on track for the first quarterly uptick since 2024, according to a report this week by analysts at Deutsche Bank AG.

Even with that increase, distributions remain relatively low by historical standards. Cheaper loans are a positive for new issuance, but won’t necessarily trigger a torrent of new CLO sales. About $139.2 billion of new issue CLOs have been sold this year through Thursday’s close, down more than 16% from the same time last year.

Bargain loans help CLO equity in at least two ways: by paying higher yields from interest payments, and by generating extra return when they are repaid at face value. When a money manager buys a loan at, say, 97 cents on the dollar, and then eventually gets repaid at 100 cents, equity gets an outsized benefit from that price gain, because it offers leveraged returns.

Equity is often the hardest part of a CLO to sell, and rising returns for the asset class will probably make it easier to put CLOs together. The CLO arbitrage — the gap between what the vehicle earns on its loans and what it pays out to bondholders — has been ticking slightly higher as well in recent months. That gap widened to 1.41 percentage point this past week, up 0.07 percentage point from the prior week and above the 1.16 percentage point average for the past year, according to other JPMorgan strategists.

“In the long run, we always view bouts of volatility like this to be beneficial for CLO equity,” said Dan Ko, portfolio manager at Eagle Point Credit Management, which buys CLO equity.

The challenge for investors is to find loans that are trading below face value but still represent a good credit risk. There are some industries where technological changes are weighing on revenue and threatening to trigger more defaults. Cable-television companies, for example, are under pressure as consumers stream video over the internet.

“There’s a real separation between companies that can live with today’s cost of capital, and some companies whose capital structures were built in different environments,” said Michael Levitin, portfolio manager at MidOcean Partners.

Credit Edge: AI Bond Blitz Upends Investor Benchmarks (Podcast) Week In Review Microsoft Corp. sold corporate bonds for the first time in nearly decade on Thursday, raising $25 billion with ease. Its rare AAA ratings helped the company attract demand even as investors grow wary of the sector.

New AI borrowing is still happening, particularly for companies like Microsoft seen as relatively strong. Chipmaker Broadcom Inc. arranged a $63 billion financing package with Bank of America Corp., Blackstone Inc., Citigroup Inc. and Morgan Stanley to finance the purchase of chips for AI model developer Anthropic PBC. Bank of America, Citi and Morgan Stanley are lending about $42 billion of the amount, as much as half of which is expected to be refinanced in the US high-grade corporate bond market in the first quarter.

SpaceX signed a roughly $40 billion equipment-finance lease with Apollo Global Management Inc. to pay for the chips needed to fuel its artificial intelligence ambitions.

has set up supplier financing arrangements to borrow as much as $80 billion against the value of hardware it buys, the company’s latest move to preserve financial flexibility as it spends hundreds of billions on artificial intelligence infrastructure.

But there are still some signs of growing fears. Costs to protect the debt of numerous US technology heavyweights against default hit fresh record highs this week, with disappointing quarterly reports from Intel Corp. and Amazon.com Inc. spurring fresh concerns on whether the massive borrowing binge financing the AI boom will pay off.

Banks are delaying plans to offload part of a $15 billion loan to fund a data center tied to Anthropic PBC in Texas, after the state put a hold on new projects while assessing risks to its power grid. The bond offering delay, which comes as Anthropic is investing heavily on computing infrastructure ahead of its massive initial public offering, would leave the banks holding the debt on their balance sheet longer than they originally planned.

Investing giant Pacific Investment Management Co. helped supercharge the artificial intelligence debt boom with billions of dollars in lending in 2025 —and has cut exposure just in time to skirt losses and eke out a profit. With a series of well-timed sales, interest rate hedges and a decision to skip later AI bond deals, Pimco has so far managed to duck the billions of dollars in hits that fixed-income investors now face after a flood of debt overwhelmed the market and sent prices tumbling. Separately, Pimco did buy a $4 billion slice of the SpaceX financing deal that will help expand its artificial intelligence ambitions.

Heavy debt issuance by AI tech firms worldwide helped drive global investment-grade and junk bond sales to nual record this week, with two months still to go. US investment-grade sales also set an annual record topping the previous record set during the pandemic-fueled borrowing boom in 2020.

Consumer giant Procter & Gamble Co. sold $1.25 billion of 30-year bonds at a spread of just 0.6 percentage point over Treasuries, a level not seen since 2003, according to data compiled by Bloomberg. It’s a sign of investor appetite for long-term blue-chip debt amid a dearth of such issuance.

Star hedge fund manager Hamza Lemssouguer’s flagship fund was down 12% in October through Oct. 23, and down 26% this year, as risky European junk bonds slump.

His fund management firm, Arini Capital Management, has been selling off positions and is getting bids on more holdings from firms including Pimco and Oaktree Capital Management.

BNP Paribas SA is working on one of the biggest significant risk transfers ever a deal linked to about €16 billion ($17.9 billion) in large company loans. The Paris-based lender is planning to offload risk on a first loss piece of the portfolio, equivalent to 5% of its value, according to people familiar with the matter.

Saudi Arabian state-backed oil company Aramco is nearing agreement with international banks on a $10 billion loan that would bolster its finances as conflicts in the Middle East threaten crude exports.

The AI-driven debt boom is creating some of the most attractive fixed-income opportunities in years, eclipsing the appeal of long-dated US Treasuries, according to BlackRock’s Rick Rieder“I’ve never seen anything like it in terms of the size of the financing that’s coming in both debt markets, equity markets,” the firm’s chief investment officer for global fixed income said in a Bloomberg TV interview. The surge in financing for graphics processing units, data centers and other AI infrastructure is particularly compelling, Rieder noted.

The money manager prefers secured debt from established companies and cash-generating assets, while also seeing reasonable equity valuations in semiconductors and computing.

Citadel Co-Chief Investment Officer Pablo Salame says the AI boom will leave some casualties in its wake. In a rare interview, he said the extraordinary capital demand underpinning the AI revolution is clashing with wary lenders unwilling to take on all that risk. “The credit market is getting jammed right now because it hasn’t figured out a good way to offload those risks yet,” Salame said. The enormous financial ask needed to get to AI’s promised utopia is cropping up as a source of friction that’s holding back runaway growth. “Credit is not done resetting,” Salame, said. “It’s going to be very tested.”

Weil Gotshal & Manges, a lawfirm lonng known for its bankruptcy practice, plans to wind down after nearly a century of operating. It has lost partners to other firms willing to pay more, leading to a scramble for it to retain staff.

China’s unprecedented property crisis has reached another flashpoint, as one of the country’s biggest local-government owned conglomerates struggles with debt payments Zhuhai Huafa Group Co. missed payments on two trust products that were due recently, people familiar with the matter said on Monday. The firm, which has helped build landmarks such as the 330-meter tall Zhuhai Tower skyscraper, has also been asking to extend loans from at least three banks. The news sparked sharp declines in bonds and shares tied to the group, which had just priced a 1 billion yuan note in the domestic market at the relatively low cost of 2.07% earlier in the month.

Dave & Buster’s Entertainment Inc. has tapped Moelis & Co. to help address its $1.5 billion debt as a slump in leisure spending is pushing it further into distress, according to people familiar with the matter. Separately, a consortium of the company’s creditors is working with PJT Partners and Gibson Dunn & Crutcher. The group has executed a cooperation pact and is now seeking signatures to broaden support. The pact is the latest effort by the struggling entertainment company’s creditors to fend off infighting that tends to pit lenders against each other, often to the detriment of minority debt holders.

Lionsgate Studios Corp., the filmmaker behind and other titles, is looking to sell bonds backed by its catalog and talking to investors about a possible transaction. Japanese lender Mitsubishi UFJ Financial Group Inc. is arranging early discussions between the film-production company and money managers that may or may not lead to an offering, according to people with knowledge of the matter. Companies rarely sell bonds backed by movies and TV shows. The last notable such sale was in 2020, when Village Roadshow Entertainment Group, owner of movies including the trilogy, sold $421.5 million of securities.

Ares Capital Corp. said it agreed to buy private credit fund MidCap Financial Investment Corp. from Apollo Global Management Inc. in a cash-and-stock transaction with an enterprise value of $2.6 billion. Private credit managers have been looking to sell underperforming funds this year amid broader market turmoil and investor redemptions, and have been attracting interest from competitors scooping up cheap deals in the $1.8 trillion market.

On the Move Gemcorp Capital has hired Morgan Stanley Mariya Gancheva as chief strategist and portfolio manager for emerging-market distressed & special situations credit.