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Sunday, February 5, 2023


Lack Of Cash Loans For Sale At Any Price Causes Scramble For Derivatives

Courtesy of Tyler Durden

We are one step away from the full blown reincarnation of the entire CLO market. We read in Loanconnector that “LCDX14 and LCDX13 are better today on increased volume as accounts have found it increasingly difficult recently to take on exposure via the cash market, sources said. With sellers hard to come by in the cash loan space, investors are turning to synthetics to take on exposure.” And there you have it: offer spigots everywhere are shut down as nobody sees any incentive to sell in a market where the Fed has taken away all the risk. And with sellers unwilling to offer product no matter what the cost, the scramble for derivatives and synthetic exposure is coming back with a vengeance. If this is any indication, we expect that the securitization market for corporate loans will be flying within a few weeks as investors needing to allocate capital to moral hazard strategies scramble to get Citi, Goldman, and Barclays to resecuritize all the same crap, and then some, that got us in this mess to begin with. With dividend deals, PIK toggles, no COC bonds, no downgrade trigger issues already a daily occurrence, corporate issuers hold all the cards. For all those companies which have opened restructuring practices over the past year in expectations of surging defaults, our condolences. You – 0, Moral Hazard – Infinity. As for the LCDX situtation: “Meanwhile, the Markit LCDX13 is hitting all time highs of 106.0625-106.1875 this afternoon.

Whatever you do, don’t call it a Fed-sponsored bubble.

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