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DOJ Investigates Potential Collusion in $1.3 Trillion Loan Securities Market

By  |  July 20, 2025

Federal prosecutors are conducting a sweeping criminal antitrust probe into possible collusion among investors in the multitrillion-dollar market for collateralized loan obligations (CLOs), according to Bloomberg. The investigation, led by the U.S. Justice Department’s antitrust division in New York, is focused on investor behavior during the high-stakes shift away from the London Interbank Offered Rate (Libor) in early 2023.

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    According to Bloomberg, subpoenas have been issued to a number of financial firms with holdings in CLOs, as authorities explore whether investors holding equity tranches in these complex securities coordinated to influence how underlying corporate loans were repriced during the benchmark transition.

    The investigation began roughly 18 months ago, per Bloomberg, and remains confidential. People familiar with the matter, who spoke on condition of anonymity, indicated that prosecutors are examining communications among CLO equity investors during the critical window before Libor’s final phaseout.

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    CLOs are structured financial instruments that bundle leveraged loans into securities with varying levels of risk. Investors in the lowest-ranking layer — known as the equity tranche — are last to receive payments, but also stand to gain the most if cash flows from the loans are robust. During the transition from Libor to the Secured Overnight Financing Rate (SOFR), many companies holding leveraged loans attempted to avoid including a compensatory spread that accounts for the fact that SOFR typically prints below Libor. Excluding this spread meant reduced interest payments, potentially benefiting the companies but hurting CLO equity holders.

    Per Bloomberg, this dynamic created a financial pinch for investors at the bottom of the CLO capital structure. Lower loan interest payments could significantly erode the already slim margins these equity holders rely on. Some of those investors, prosecutors believe, may have taken coordinated steps to protect their interests — possibly crossing legal lines in doing so.

    Under U.S. antitrust law, any agreement between independent economic entities to act in concert for mutual financial gain — particularly in setting terms or influencing markets — may be deemed illegal collusion.

    A spokesperson for the Justice Department declined to comment on the ongoing investigation, Bloomberg reported.

    As federal authorities delve deeper, the case could have far-reaching implications not just for the CLO market, but also for broader regulatory scrutiny of investor behavior during benchmark transitions.

    Source: Bloomberg