{"id":38088,"date":"2018-09-21T16:43:59","date_gmt":"2018-09-21T21:43:59","guid":{"rendered":"http:\/\/olduvai.ca\/?p=38088"},"modified":"2018-09-21T16:43:59","modified_gmt":"2018-09-21T21:43:59","slug":"leveraged-loan-demand-is-off-the-charts-as-dangers-mount","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=38088","title":{"rendered":"Leveraged Loan Demand Is Off The Charts As Dangers Mount"},"content":{"rendered":"
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Leveraged Loan Demand Is Off The Charts As Dangers Mount<\/a><\/span><\/h3>\n<\/div>\n
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Ten years after the crisis, demands for leveraged loan offerings is once again off the charts. Portfolio managers who are seeking rising yields\u00a0as the Federal Reserve hikes rates have shown unprecedented demand <\/a>for recent\u00a0deals, despite repeated warnings that they may be buying “at the wrong time.”<\/p>\n

Leveraged loans are a type of debt that is offered to an entity that may already have\u00a0significant amounts of leverage or a poor credit history. As rates move higher, the loans – whose interest rates reference such floating instruments as Libor or Prime – pay out more. As a result, as the Fed tightens the money supply, defaults tend to increase as the interest expenses rise and as the overall cost of capital increases.<\/p>\n

Gershon Distenfeld, co-head of fixed income at AllianceBernstein LP and a longtime “skeptic of bank loans”\u00a0told Bloomberg<\/a> that a good way to gauge the risk in the loan market is to look at returns when loans price too high. Currently, the average outstanding loan is priced at about 98.5 cents on the dollar. According to Distenfeld’s research of market prices between 1992 and 2018, when priced at this level, annual returns are about 2.8% for the following two years – lagging both behind 5 year treasuries and high yield bonds.<\/strong> And yet investors are piling in, hoping for even more generous payments, and oblivious of whether the underlying credit will be viable in a higher interest rate environment.<\/p>\n

Guy LeBas, chief fixed-income strategist at\u00a0Janney Montgomery Scott LLC kept it simpler: “It\u2019s not a good time to be buying bank loans,”<\/strong> he stated. He also noted something we have demonstrated on numerous prior occasions: lender\u00a0protections are worse than usual\u00a0and there’s a smaller pool of creditors to absorb losses, and as covenant protection has never been weaker<\/a>.<\/p>\n

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\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Leveraged Loan Demand Is Off The Charts As Dangers Mount Ten years after the crisis, demands for leveraged loan offerings is once again off the charts. Portfolio managers who are seeking rising yields\u00a0as the Federal Reserve hikes rates have shown unprecedented demand for recent\u00a0deals, despite repeated warnings that they may be buying “at the wrong […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[195,303,431,1774,8625,1138,3650,4318],"class_list":["post-38088","post","type-post","status-publish","format-standard","hentry","category-economics","tag-debt","tag-fed","tag-interest-rates","tag-leveraged-loans","tag-quantitative-tightening","tag-stock-market","tag-us-federal-reserve","tag-zerohedge"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/38088","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=38088"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/38088\/revisions"}],"predecessor-version":[{"id":38089,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/38088\/revisions\/38089"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=38088"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=38088"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=38088"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}