Leveraged loans

Deals, trends and research in structured finance and asset-backed securities for the week of Sept. 4-10

This year has already seen a glut of corporate failures: there were 177 U.S. bankruptcy filings year-to-date by companies with over $50 million in liabilities, according to data compiled by Bloomberg

There’s been a flurry of interest in so-called fallen angels recently as investors seek alternatives to the ultra-low yields on high-grade debt.

The industry’s turmoil, including 'strategic options' being pursued by corporate debt obligors like Transocean and Seadrill, has sparked the biggest wave of restructurings since 2017, when the effects of the last oil price downturn reverberated through the industry.

Alternative lenders like Apollo, Ares and HPS are increasingly providing larger loans to borrowers, and potentially taking away share from the leveraged loan and high-yield bond markets.

While rival banks reported increases in loans and deposits, thanks largely to their participation in the Paycheck Protection Program, State Street and Bank of New York Mellon saw their balance sheets shrink in the second quarter.

he report concluded that the industry should fare well compared with its peers, but that loans to mid-sized European companies remained vulnerable to fall-out from Covid-19.

Investors shouldn’t assume anything about the behavior of speculative-grade debt in this environment.

If creditors can now be pushed down the repayment pecking order without notice and have no recourse to fight back, they will be forced to reassess risk – and potentially demand higher interest rates – when granting loans and buying certain kinds of bonds.

Retailers and energy firms filed for bankruptcy protection in record numbers in the first half of 2020. Meanwhile, the volume of leveraged loans mandated but yet to launch is down 55% from the end of May.