CLOs Launch a Comeback; But Will It Last?(News)

Byline: Richard Kellerhals

If the leverage finance market has a Mickey Rourke-the actor who wrestled his way back on top-it would probably be the CLO manager. CLOs have experienced a comeback recently, mainly because secondary prices have improved since the first quarter. But market participants believe that CLOs are still on the ropes, and will be for the rest of the year.

"If we were to paint a broad brush stroke," JPMorgan analysts said in a recent report, "the CLO market is in a 'positive feedback loop.'" The loop, they said, describes how technical and fundamental improvements are "feeding back" to investors looking for yield. "Although risks remain, it's hard to see this loop breaking anytime soon."

The most significant factor that has helped revive the CLO market has been the improvement in secondary loan prices. The average price of a loan in Markit's LCDX index-one market …