Goldman, Morgan Stanley Are Backstopping Riskiest Slices of CLOs
- Banks seek edge in arranging collateralized loan obligations
- Firms risk getting stuck with CLO equity they can’t unload
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Goldman Sachs Group Inc. and Morgan Stanley are increasingly willing to temporarily hold onto some of the riskiest parts of new collateralized loan obligations, in a bid to win more market share in the once again booming business of helping firms package leveraged loans into bonds.
The Wall Street banks have in recent months been selectively offering to underwrite the so-called equity portions of CLOs as part of a push to win deals, according to people with knowledge of the matter. CLOs bundle leveraged loans into slices of varying risk and return. The equity piece, while offering potentially juicy profits, is the last to be repaid, often making it difficult for firms that run the structures, known as collateral managers, to drum up demand.