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Stories of Interest
- North Korean caught secretly mining bitcoin rival
- IPO Timelines Cut by 80% After SEC's Private Filing Decision
- How the Carried Interest Break Survived the Tax Bill
- FINRA: The Neutral Corner
- Coinbasex Says Buying and Selling Temporarily Disabled Amid Price Rout
- Bitcoin plunges by more than a third in a single day
- Goldman Is Setting Up a Cryptocurrency Trading Desk
- Jefferies Lets Employees Choose When to Receive Their Bonuses
- UBS Told to Pay $903K After Losing Retaliation Verdict
- BEWARE: Long Island Iced Tea Shares Soar After Changing Name to Long Blockchain
- Gary Cohn’s Last Laugh: Cashing Out on Trump’s Tax Plan
- E*Trade Lets Customers Trade in CBOE Bitcoin Futures
- Swiss Find Serious Shortcomings at JPMorgan in 1MDB Case
- Washington-based Investment Adviser and His Business Partner Charged in Multi-Million Dollar Scheme
- FINRA Board of Governors Meeting
- Cryptocurrency Market Now Doing Same Daily Volume as the NYSE
- Jailed Barclays Trader Must Pay $400,000 From Libor Profits
- Trump Asks ‘How’s Your 401(k)?’ But Most Voters Don’t Have One
- A Bitcoin Hedge Fund’s Return: 25,004% (That Wasn’t a Typo)
- Madoff Victims Near Full Recovery of Principal With Payout
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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.