December 12, 2008 JPM Buying CLOs Worldwide

- JPMorgan Chase & Co., the largest U.S. bank, is seeking to buy as much as $780 million of AAA rated portions of collateralized loan obligations, according to a list of securities the company circulated to traders and investors.

The bank is asking for offers tomorrow from holders of the debt backed by high-yield, high-risk corporate loans, said five traders who declined to be identified because the request isn’t public.

I have talked about how the market for bank loans is an opportunity right now. Buying these a portfolio of these loans and holding them to maturity or default is almost a no brainer investment.

JPM and others are beginning to raise demand for these loans. However other than buying CLOs, the retail investor is limited to closed-end-funds, which have their own associated risk, in the form of leverage, to capitalize on the idea. In addition, CLOs have over funding provision that can enhance security for the most senior tranches.

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