Fund Redemptions No Deterrent to Loan Rally

Surge in new collateralized loan obligations helps push prices to five-month high.

Not even investors fleeing mutual funds that buy junk-rated U.S. corporate loans is enough to keep Cerberus Capital Management LP from tapping the market to finance its $9.2 billion bid for Safeway Inc.

Cerberus will begin raising $6.7 billion in loans today to fund its buyout of the grocer and merge it with Albertsons. Less than a week ago, mutual funds that invest in the debt posted their biggest withdrawals in almost three years, bringing redemptions since mid-April to more than $3 billion.

‘Quickly Oversubscribed’

“The comeback in loan prices is driven by the support away from retail,” Newfleet’s Ossino said. “So much so that we’ve started to see deals become quickly oversubscribed again, which leads to tighter pricing and an increase in opportunistic transactions.”

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