Carol J. Clouse

The collateralized loan market has backed off of deals involving bonds until lawmakers and regulators address the Volcker Rule's impact on such instruments. Most hope for clarification or grandfathering to stave off a massive sell-off.

Banks have been the largest triple-A investors in collateralized loan obligations, but new regulations have prompted some banks to pull back. That trend is giving other investors more sway in the market, which is evident in new pricing structures.

The birth of a U.S.-style private placement market in France offers a lesson in what happens when deleveraging banks turn their backs on credit demand. The French market could spread across Europe and compete with U.S. lenders and investors someday.

Regional banks and other new investors helped quadruple CLO issuances to $55.2 billion last year. The boom is expected to continue in 2013.

Investors are buying more of the riskier portions of collateralized loan obligations, fueling the CLO market and demand for bank loans.

Leveraged loans arranged by banks set a record in August, and issues of collateralized loan obligations are now on pace to hit $30 billion this year.

Countless municipalities, pension funds and hedge funds are conducting inquiries into losses and preparing lawsuits and financial bloggers are condemning the apparent fraud committed by bank employees, but one group can't seem to summon up much outrage over the Libor scandal: the companies whose funding costs are linked to the benchmark.

Past rallies in issuance of leveraged loans for mergers and acquisitions or leveraged buyouts have sputtered before, but macroeconomic factors are expected to keep investors bullish this time.

Demand for these deals has risen in a liquid market, issuers are plentiful — but returns vary.

Demand is outpacing supply in the leveraged loan market, which means issuers are obtaining less costly credit at the expense of investors in the loans. However, the tide is poised to turn, perhaps in the second half of the year.

Underwriters are taking advantage of the broader U.S. market's liquidity, as well as a favorable dollar-to-euro exchange. U.S. investors and banking companies are among the beneficiaries.

CLO issuances will likely increase this year after tripling last year, but volatility in Europe and other macroeconomic issues present a big challenge.

The leveraged loan market is not known for its swift pace. But a lack of new supply, along with market volatility and risk aversion, have been speeding up the rate at which some loans get syndicated.

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