The anticipated contraction of the collateralized loan obligation market is being seen fulfilled, in part, by Man Group's takeover of Silvermine Capital. Tougher regulations were making consolidation the most obvious way for the industry to survive.
Collateralized loan obligations managers now believe that spreads on their deals are wide enough, compared with commercial MBS spreads, that insurers will soon return to CLOs. Many major insurers had shifted to commercial MBS after the bond market rout in June, hoping to lock in high yields.
As loans soured during the financial crisis, collateralized loan obligation funds suffered. The CLO market is starting to recover as companies are bought out or as they refinance loans through bond markets. Cash inflows to CLO funds are picking up, which might lead to more lending for leveraged deals.