The collateralized loan obligation market seems to be re-heating, thanks in part to private equity (private equity news) firms, which are increasingly buying CLOs as well as investing in small-firms that managed these instruments.

As the economy improves and loan defaults slow, the market has come storming back from oblivion. The nadir was 2009, when no new CLOs were sold. But according to IDD, that has changed. Citigroup (NYSE: C) has been active lately. It is marketing ALM Loan Funding 2010-1, a $300 million CLO with triple-A and single-A tranches sponsored by Apollo. Last month, it offered a $525 million CLO for an investment affiliate of buyout group Welsh Carson.

Today's CLOs are different from more leveraged vehicles that flourished a few years ago, embodying much less risk. The rise of this market bodes well for an expected wave of refinancing that will be done the next few years. Private equity firms are increasingly buying firms that manage CLOs. In February, for example, Blackstone acquired management agreements for nine CLO and collateralized debt obligation funds from Callidus Capital Management.

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