Midsize businesses and state and local governments are among the beneficiaries of the central bank's latest $2 trillion effort to mitigate the economic damage caused by the coronavirus pandemic.
While collapsing market prices do not present immediate worries for CLO managers, the prospect of future downgrades and defaults becomes more problematic.
Prices for major term loans issued by operators such as Marriott International, Hilton Worldwide and Caesars Entertainment have fallen in recent weeks as investors grow worried about the impact of the COVID-19 outbreak on global tourist and business travel.
Banks may be protected from a direct hit, but they have invested in vehicles that include such loans, potentially exposing them to defaults.
Ample access to cash and debt, along with strong diversification strategies built into investment portfolios, will help asset managers and junk-rated corporate borrowers absorb any near-term substantial economic headwinds, according to Fitch Ratings.