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- Inside Scaramucci’s Extreme Loyalty to Trump – William Cohan
- Who President Trump Can Pardon, and Who He Can’t
- Ex-UBS Compliance Officer, Day Trader Deny Insider Trading
- Private Equity’s Big Bets on Financial Tech
- Trump Reportedly Floats Making Rudy Giuliani Attorney General
- Mastercard Wins Dismissal of $18 Billion Class Action Suit
- Jailed Schroders Trader Also to Pay $456K for His 'Criminal Lifestyle'
- Raymond Lucia, Ex-Radio Host Asks U.S. Top Court to Rule On Administrative Law Judges
- As Trump Administration Circles the Drain, Anthony Scaramucci Finally Lands West Wing Job
- Internal Power Struggle Rattles Guggenheim Partners
- Why Most People Will Never Be Successful
- Top Deutsche Bank Trader Leaves After Risky Bets Led to $60Mn Loss
- Bank of America Picks Dublin as EU Hub Post Brexit
- E*Trade Rises 4% as Q2 Earnings Beat Estimates
- I Scream, You Scream, FINRA Screams For Ice Cream ... or ... FINRA Deep-Freezes Broker
- Senate Panel OK's David Kautter, Trump Pick for Top Treasury Tax Job
- OJ Simpson Granted Parole After 9 Years in Prison
- PayPal to Partner with JPMorgan
- BNY Mellon Beats on Q2 Earnings as Revenues Improve
- I Scream, You Scream, FINRA Screams for Ice Cream ... or ... FINRA Deep-Freezes a Broker
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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.