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- Deutsche Bank ‘Beyond Repair’ as Trading Drops - Autonomous Research
- Guggenheim Partners CEO Might Step Down
- Wachovia Customer Sues Wells Fargo Over FundSource Losses - Bill Singer
- Credit Downgrade for Wells Fargo Due to Fake Account Scandal
- CFTC Commissioner Quintenz Named Sponsor of the Technology Advisory Committee
- Harbour and Geneos Customers Win FINRA Arbitration Against Stockbroker - Bill Singer
- Equifax Suffered a Hack Almost Five Months Earlier Than the Date It Disclosed
- The World’s Biggest Wealth Fund Hits $1 Trillion
- At Jefferies, Like Wall Street, Trading Cedes to Banking
- Ex-SAC Trader Who Pleaded Guilty to Insider Trading Just Remembered He’s Innocent
- JPMorgan Turns to Amazon for Retail 'Customer Experience'
- Goldman Sachs Names Ken Hitchner as New Chairman for Asia Pacific
- Judge All but Tosses SEC Case Against ‘Rogue’ Trader And Ex-FBI Informant Guy Gentile
- 'Boys are #1 Among NFL's Most Valuable Teams
- Fake Tax Returns - Your Next Worry After the Equifax Breach
- FINRA DR Recruiting Arbitrators, Mediators at Congressional Black Caucus Conference
- JPMORGAN: Here's who we think will replace Warren Buffett at Berkshire Hathaway
- Mueller to Search Facebook for Russia-Linked Accounts
- Mark Gomes, Market Analyst and Trade Scalper Settles with SEC
- Equifax Waives Credit Lock Fees For Consumers, Amid Criticism
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NEWSLETTERS & ALERTS
Wall Street News
Jumping on the Leveraged Loan Wagon
Bloomberg News and, more recently, the WSJournal have reported that investors are desperate for higher yields in a low-rate environment. This, in turn, has created a leveraged-loan frenzy that Wall Street’s largest banks like Goldman Sachs and Bank of America are more than happy to accommodate. Loan sales are running ahead of the pace of years past and investors – both individual and institutional – are piling back into U.S. funds that specialize in loans.
So, what is ‘Leveraged Loan’? According to Investopedia.com, a leveraged loan is extended to companies or individuals that already have considerable amounts of debt. Lenders consider leveraged loans to carry a higher risk of default, and as a result, a leveraged loan is more costly to the borrower. Leveraged loans for companies or individuals with debt tend to have higher interest rates than typical loans; these rates reflect the higher level of risk involved in issuing the loan.
Breaking Down 'Leveraged Loan. In business, leveraged loans are also used in the leveraged buyouts (LBOs) of other companies. A leveraged loan is structured, arranged, and administered by at least one commercial or investment bank. These institutions are called arrangers and subsequently may sell the loan, in a process known as syndication, to other banks or investors to lower the risk to lending institutions.
A Leveraged Loan - FKA a 'Junk Bond'. There's no exact criteria for defining a leveraged loan. Some market participants base it on a spread - e.g., where loans pay a floating rate, typically based on LIBOR plus a stated interest margin - if the interest margin is above a certain level, it is considered a leveraged loan. Others base it on the rating, with loans rated below investment grade, which is categorized as Ba3, BB- or lower from the rating agencies Moody's and S&P.
S&P's Leveraged Commentary & Data (LCD), which is a provider of leveraged loan news and analytics, places a loan in its leveraged loan universe if the loan is rated BB- or lower. Alternatively, a loan that is nonrated or BBB- or higher is classified as a leveraged loan if the spread is LIBOR plus 125 basis points or higher and is secured by a first or second lien.