Leveraged Lending

Leveraged lending is a small but important piece of the U.S. financial system.

Leveraged Loans are a type of syndicated loan made to below investment grade companies, i.e., companies with a credit rating below BBB-/Baa3. Many well-known companies fall into this category and they may originate loans for a variety of reasons – general corporate purposes, refinance an existing loan, part of a recapitalization, finance a leveraged buyout, etc.

There are currently $1.7 trillion in leveraged loans outstanding. Other facts about leveraged lending include:

  • While leveraged lending origination and CLO issuance has grown, both markets remain much smaller than common fixed-income securities segments
  • Leveraged lending is small in comparison to the total amount outstanding in U.S. fixed-income securities, 4.1% of the total or 0.18x MBS/0.19x corporate bonds
  • Leveraged Lending & CLOs have low default rates: leveraged loan default rates peaked in 2014 at >4.5%, but are down to 1.2% as of March 2019

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