Is the new credit market euphoria already getting out of hand?

Eaton Vance, the largest manager of tax-advantaged mutual funds, is putting together a $1 billion bankruptcy loan fund, Bloomberg reports.

With the recession driving so many companies under, those loans abound of course. But is that really what investors want to be buying amid an economy that’s still shrinking and capital markets that some say are vastly overvalued?

Yes, says Eaton Vance’s Scott Page, who will manage the fund.

Bankruptcy loans, formally known at debtor-in-possession (DIP) loans, “are among the most attractive pieces of paper out there,” he said at a recent conference.

“I’m absolutely mystified as to the lack of interest on the part of banks.”

Maybe it’s the fact that they almost drove themselves into oblivion investing in subprime mortgage securities and the like during the past few years.

But Eaton Vance isn’t alone in going after the DIP loans. Aladdin Capital Holdings, which manages $15 billion, and General Electric also plan to do it, Bloomberg reports.

One benefit for DIP loan investors: They’re paid ahead of other creditors in a bankruptcy.

Still, experts warn that capital markets are starting to get ahead of themselves.

"There is a sense of desperation in the capital raising these days," Jack Ablin, chief investment officer at Harris Private Bank, tells The New York Times.

"We're not jumping to finance yet."