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Illustration: Aïda Amer/Axios

Investors are buying into corporate loan funds at a rapid clip — and that's likely to continue as they position for a rising rate environment.

Why it matters: Interest on this type of debt, known as leveraged loans, goes up when rates go up — since it's tied to benchmarks like Libor which can rise and fall.

  • Leveraged loans provide liquidity to below-investment-grade companies when they need cash. They're also a crucial part of the financing for M&A and private equity buyouts.

What they're saying: More investor demand for these loans will enable even more buyouts as PE firms look to deploy the mountains of dry powder they’re sitting on, Paul Raskin, senior analyst at Neuberger Berman, tells Axios.

The big picture: Floating rate mutual funds, a major buyer of leveraged loans, have seen net inflows of $25 billion this year, compared to outflows of about $25.5 billion in the same period last year, according to financial data provider EPFR.

  • The other major buyers of leveraged loans are structured vehicles known as CLOs (collateralized loan obligations), which are being issued at a feverish pace.

Of note: Also making leveraged loans attractive to investors right now are low default rates. Defaults by weaker companies were pulled forward last year during the pandemic, and they're expected to be historically low over the next few years, Raskin says.

The bottom line: Expect the inflows to leveraged loan funds to continue for the foreseeable future.

Go deeper

Dept. of Education to cancel $1.1 billion in debt for ITT Tech students

Photo by Jahi Chikwendiu/The Washington Post via Getty Images

The U.S. Department of Education announced on Thursday that it would forgive federal loans for students who attended ITT Technical Institute (ITT Tech) and left after March 2008 without getting a degree.

Why it matters: This announcement is part of an increased effort by the Biden administration to forgive student loan debt, and follows a federal investigation into alleged fraudulent recruitment practices at the for-profit college.

Updated 8 hours ago - World

U.S. airstrike kills senior al-Qaeda leader in Syria, DOD says

A displacement camp near the village of Qah in Syria's northwestern Idlib province. Photo: Ahmad Al-Atrash/AFP via Getty Images

A U.S. airstrike in northwest Syria on Friday killed senior al-Qaeda leader Abdul Hamid al-Matar, U.S. Central Command said in a statement.

Why it matters: Syria serves as a "safe haven" for the extremist group to plan external operations, according to U.S. Army Maj. John Rigsbee.

Updated 13 hours ago - Politics & Policy

Giuliani associate Lev Parnas convicted of campaign finance crimes

Lev Parnas, a former associate of then-President Donald Trump’s personal lawyer Rudy Giuliani. Photo: Stefani Reynolds/Bloomberg via Getty Images

Florida businessman Lev Parnas was convicted Friday on charges of conspiracy to make foreign contributions to political campaigns, according to multiple outlets.

Why it matters: Prosecutors said Parnas, then an associate of former President Donald Trump's personal lawyer Rudy Giuliani, funneled over $150,000 from a Russian businessman into U.S. campaigns as part of an effort to land licenses in the U.S.'s legal cannabis industry.