Leveraged Loans Get Regulators Attention

Central bankers are focusing on the threat posed by the growing market for leveraged loans, which recently totaled $1.3 trillion. According to LCD, issuance is on pace to exceed last year’s record of $650 billion. Losses could be substantial should borrowers default on these cov-lite loans:

“Moody’s projects that top-ranked ‘first lien’ loans will recover 61 cents on the dollar when borrowers default. That is down from a historical average of 77 cents. The drop-off is even larger for subordinate ‘second lien’ loans, with recovery rates of just 14 cents on the dollar, as opposed to the 43 cents historical average.”

See article for some excellent charts detailing cov-lite growth in this space.

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Source: Colby Smith | "Red-hot leveraged loan market draws regulatory heat" | The Financial Times | 10/29/2018 | Visit