(Bloomberg) — Some investors in a Crescent Capital Group investment vehicle are seeing their capital wiped out after the manager took the controversial step of deeming the vast majority of the deal’s underlying loans as credit risks.
Crescent unwound Atlas Senior Loan Fund X Ltd. — a collateralized loan obligation which pools riskier corporate loans into bonds of varying risk and return — by applying this designation across most of its portfolio in June, according to deal documents seen by Bloomberg News.
While unusual, the transaction’s governing documents grant the manager leeway for such a maneuver. Designating the loans as credit risks gave Crescent broader authority to sell them as it shrank the CLO toward a 20% threshold that would allow it to liquidate the remaining portfolio without approval from subordinated noteholders.
Investors in the riskiest B rated bonds have lost their entire investment, while the BB graded notes were also impaired, according to a September trustee report. Investors in the equity portion — which is last in line to receive payments from cash generated by the loans — haven’t received a distribution since July 2025, the report shows.
Loans can be classified as credit risks if they face declining prices, ratings pressure, or the borrower struggled to raise equity or junior financing, among other criteria, according to the deal’s indenture document.
Despite the designation, several other CLOs managed by Crescent have since repurchased some of the same loans that the Atlas CLO sold, according to data compiled by Bloomberg.
A representative for Crescent declined to comment.
Tough Vintage
Crescent priced the $510 million CLO in 2018, just as a wave of distress hit the retail sector and a number of leveraged loan borrowers defaulted. Its prime investing years spanned the shocks of Covid, which shut down swathes of the economy, followed by a series of aggressive post-pandemic interest rate hikes in 2022.
By the time the CLO’s reinvestment period ended in 2023 — a typical five-year timeline by market standards — the vehicle had navigated a particularly punishing environment.
“All these vintages have gone through various credit cycles,” said Pratik Gupta, who leads CLO research at Bank of America
Corp. “It’s not been a great vintage.”
Single-B bonds are a rarity in the CLO market, accounting for just 5% of total issuance. However, roughly 10% to 15% of these bonds have either experienced impairments or are projected to do so, according to Gupta. While average loss rates typically hover around 50%, actual outcomes vary significantly.
One of the deal’s loans was to Cornerstone Building Brands Inc., which has seen its debt due in 2028 fall below 40 cents on the dollar. The building products maker has been grappling with rising input costs and a broader construction slowdown, which dented its second-quarter results.
The CLO also held loans to the beleaguered software company FinThrive Inc. and mobile services firm Syniverse Technologies, the latter of which recently overhauled its debt. Another underlying loan, to the cybersecurity software firm Ivanti Inc., has been trading at around 32 cents amid downbeat earnings.
In a report earlier this month, S&P Global Ratings noted the “insufficient proceeds available to cover the principal due” on the affected notes of the CLO.
But several loans in the Atlas CLO that were sold were actually performing well. This includes loans to software developer Ascend Learning, which is trading at about 99 cents, and healthcare software provider AthenaHealth Group Inc., which recently completed a successful refinancing and trades near par.
After offloading the loans in the Atlas X vehicle, Crescent then bought some of those same loans for its other CLOs, including those to Ascend Learning and AthenaHealth, according to the Bloomberg-compiled data.
Loan Prices
The Atlas CLO’s performance had deteriorated over the past year, with a growing share rated CCC, deep into junk territory, according to the Bloomberg-compiled data. The portfolio’s average loan price also fell sharply to roughly 83 cents on the dollar in June, down from about 91 cents a year earlier.
According to JPMorgan Chase & Co. strategists, the deeply distressed portion of the leveraged loan universe where debt trades below 60 cents on the dollar has climbed to $65 billion, its highest level since March 2020.
“Naturally this should be a pretty beat up vintage,” Deutsche Bank analyst Jamie Flannick said. Deals from 2018 bear an outsized portion of credit strain, accounting for roughly 32% of all over-collateralization test breaches by BB rated notes, according to Flannick. That test serves as a key safeguard, diverting cash flows to senior bondholders whenever underlying loans deteriorate.
Crescent in August announced that it had raised $232 million from investors including insurance companies and pension funds for a second CLO equity fund.
–With assistance from Scott Carpenter.
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