I investigate how covenants, intrinsic to Collateralized Loan Obligation (CLO) indentures, provide a mechanism through which idiosyncratic shocks may amplify, imposing negative externalities on other unrelated firms in CLO portfolios. I exploit cross-sectional variation in firms' exposures to the Oil & Gas (O&G) industry through CLOs, as well as the timing of the O&G price plunge in 2014, to study how non-O&G firms in CLO portfolios are affected. When CLOs are subject to idiosyncratic shocks that push them closer to their covenant thresholds, they fire-sell unrelated loans in the secondary loan market to alleviate their constraints. These fire sales exert price pressure across security markets. The market dislocations erode the liquidity positions of exposed firms, spilling into real economic activity. Contrary to traditional fire sale settings, I find CLOs fire-sell loans issued by riskier firms for contractual arbitrage purposes -- exploiting loopholes in the design of covenants. The sample period for this study is 2013-2015, a relatively benign macroeconomic period. However, the results suggest the effects may be larger during times of stress, including the outset of the COVID-19 pandemic.