Institutional investors, under pressure to deploy funds, have resorted to taking on even more risk. Hugh Larratt-Smith examines the proliferation of covenant-lite loans in the market and their implications for the industry.
According to Reuters, the leveraged loan market has only grown more aggressive in the last six months, with almost 75% of broadly syndicated loans arranged in Q1/2019 covenant-lite compared to 58.9% of such loans arranged in the same period in 2013.
Reuters reported banks are continuing to issue highly leveraged loans in the wake of loosening rules this year, despite regulator warnings of credit market frothiness.
The Wall Street Journal reported that with relaxed government regulations, risky loans are making a comeback and few seem worried about it.
Bloomberg reported money managers are beginning to demand better rates and are avoiding riskier deals, as illustrated by a $1.475 billion loan for the buyout of chemicals company SI Group.
The Wall Street Journal reported that Moody’s has predicted increased demand for floating-rate leveraged loans has eroded credit quality and will lead to more defaults and lower recovery rates in an economic downturn.
Reuters reported that syndicated lending is peaking, partly due to lowered corporate taxes and a push to borrow before interest rates rise. The result is an upswing in mergers and company refinancings.
Reuters reported 275 companies have turned to the leveraged loan market in the last three months, which has caused the $1 trillion market to suffer from market fatigue
Reuters reported direct lenders are expanding their role in underwriting working capital loans, threatening banks’ share of the middle market leveraged buyout space.
Reuters reported the U.S. leveraged loan market has started 2018 with a high demand, allowing companies to reduce pricing on loans.