Leveraged loans

The U.S. leveraged loan market is springing back to life with new deals for T-Mobile US Inc. and Delta Air Lines on deck for investors willing to take on risk.

Competition is starting to ease in the $812 billion private credit market as the disruption caused by the coronavirus pandemic forces some lenders to tend to problems in their own portfolios.

Rising default levels have produced strain on many collateralized loan obligations, many of which are now approaching breaches of covenant tests on minimum weighted-average ratings factors and maximum holdings of triple-C rated loan assets.

The Distressed Credit Opportunities Fund III money pool, dubbed Disco III, will target leveraged loans, high-yield bonds and collateralized loan obligations.

Instead of just seeking out distressed situations, the Dislocation Opportunities Fund has a wide mandate to buy corporate and asset-backed debt.

The fund will be similar to the first iteration, which gathered $2.4 billion last year and focused on lending to family- and entrepreneur-owned businesses.

Analysts and ratings companies are sounding alarms as a number of BDCs rush to shore up finances, or throw lifelines to their heavily indebted borrowers.

Fitch expects a majority of European CLO junior notes to be placed on a potential downgrade watch due to enhanced evaluation for coronavirus-related stresses.

There’s no reason to punish companies for failing to see a history-changing, once-in-a-century pandemic, or anticipate the shutdowns that would result.

For years, regulators have tried to make the financial system safer by blocking banks from taking on the extreme leverage that almost toppled the industry in 2008. Turns out, the risks just moved.