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Stories of Interest
- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
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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.