Leveraged loans

Investors have been demanding significantly higher yields to lend to junk-rated companies in recent weeks - so much so that spreads in an index of the riskiest tier of junk, known as CCC, just breached 1,000 basis points for the first time in more than three years.

Laredo Petroleum Inc. and Oasis Petroleum Inc. are among at least six producers whose ability to secure short-term loans against their oil and natural gas reserves have dropped by 10% or more.

Over 75% of loans reported mark-to-market declines in prices in the secondary market – or 4.7 loans for every loan price that advanced, according to the LSTA.

Lenders including Barclays and Deutsche Bank have been left holding at least $1.5 billion of leveraged loans that they've struggled to sell over the past several months, according to people with knowledge of the matter.

No investor wants to touch the riskiest high-yield debt. The bank’s asset manager says it’s cheap enough that there are opportunities.

S&P's review of leveraged-loan deals across multiple sectors found only 17% of lenders have provisions that would disallow borrowers from transferring collateral assets to unrestricted subsidiaries outside lender reach.

The $5 billion financing package may also include around $1 billion of secured debt that would be sold to investors, as well as about $1.7 billion in letters of credit that would be split among participating banks

Barely noticed in a corner of the financial markets, leveraged loans originally worth about $40 billion are staging their own private meltdown.

Members of the House Financial Services Committee cited leveraged lending, cybersecurity and the switch to a new interest rate benchmark among potential systemic risks that keep them up at night.

The increases are mostly at the junior debt levels of deals, according to the Refinitiv research unit.

Fresh data from the Fed, FDIC and Bank of England shows that, directly or indirectly, banks are taking on more leveraged loans. But whether this puts their loan and securities portfolios at risk remains open for debate.

“Rating agencies have been complacent and allowed debt/Ebitda and debt/equity ratios to deteriorate without a corresponding reduction in credit ratings,” Einhorn said in the July 25 letter.

The Democratic presidential candidate argued in a blog post that the U.S. could avoid a recession by canceling most student debt and authorizing regulators to more aggressively monitor leveraged lending.

Banks may be exposed to a shakeout in the $1.3 trillion leveraged-loan market even though they mostly own the safest portions of debt, according to the Bank for International Settlements.

Federal Reserve Chairman Jerome Powell says the agency is closely monitoring leveraged lending risks, but suggests further regulations on banks aren’t warranted.

The U.S. economy is on solid footing except for one potential trouble spot, according to Bank of America Corp.’s Chief Executive Officer Brian Moynihan: leveraged loans -- a business the bank has dominated for a decade.

Lawmakers waded into a growing debate about the threat posed by corporate credit risk.

Although higher corporate debt could hurt the economy, Federal Reserve Chair Jerome Powell argued changes made since the last crisis will guard against a meltdown.

The ranking Democrat on the Senate Banking Committee says he wants answers from the Financial Stability Oversight Council on efforts to address corporate debt risks.

Amid widespread concern about their exposure to leveraged lending, the debt rating agency says banks have sufficient earnings and capital cushions to continue investing in the sector.