CLO Deals Are Booming Even When the Math Says They Shouldn’t

In the $1.3 trillion market for collateralized loan obligations — where money managers sell bonds to finance buying pools of buyout loans — ugly math used to kill a deal.

Less so now.

Money managers are increasingly raising special funds known as captive equity: pools of capital they control that buy any and all CLO equity a firm might sell. By becoming their own guaranteed buyer of the deal’s riskiest portion, managers can quickly launch CLOs without needing to prove immediate profitability to the broader market — a hurdle that could have swiftly torpedoed an offering. That helps them take ...