Banking

Leveraged loans and collateralized loan obligations do not represent an "existential" threat to the global economy or to the U.S. banking system, as some recent highly charged reports have suggested.

Westlake Automobile Receivables Trust 2020-2 pools a portfolio of loans for mostly high-mileage used-vehicles financed by the privately held Westlake through independent and franchise dealers. The deal includes a $370.9 million triple-A tranche (as preliminarily rated by S&P Global Ratings and DBRS Morningstar) that benefits from 42.75% initial credit enhancement.

The leveraged loan market, long favored by private equity firms to fund LBOs, has lagged. The largest buyers of the debt - vehicles known as collateralized loan obligations - are not purchasing as much as they used to as they deal with the wave of downgrades that has hit many of the companies they already hold.

A budget item establishing a new agency to protect consumers from predatory lenders has been put on hold as state officials deal with the coronavirus response and other priorities. But it could be revived in legislative talks later this summer.

The online small-business lender’s temporary halt to loan originations contributed to a breach of a minimum asset level for its Series 2019-1 collateral pool, according to Kroll.

As revenue-starved retailers fall further behind on rent payments, landlords' cash flow will be strained, and defaults on commercial real estate loans could rise.

The central bank is only now nearing the launch of the credit facilities after the effort was announced in April. But Chairman Jerome Powell said loans have been available through other means.

The venture with Goldman Sachs represents the first time Amazon has let a third party control the underwriting process of one of its financing offerings.

If delinquency rates rise, all four stand-alone firms would have a capital shortfall.

Potential COVID-19 stresses include a rising tide of unemployed borrowers missing payments and seeking extensions, as well as falling used-car values.