Worries rise that leveraged loan market is overheating
S&P is warning that the U.S. leveraged loan market is overheating, with analyst Paul Draffin telling the FT:
"History shows us that the worst debt transactions are done at the best of times."
But don't expect this upward trend to change anytime soon. Not only because of rising Fed rates lifting all terms, but also because U.S. regulators recently announced that banks no longer should pay attention to federal leveraged lending guidelines.
It's also worth reiterating that relatively few pre-crisis LBOs actually failed, despite some high profile examples, and that the crisis itself was not sparked by risk miscalculation (or misbehavior) in the LBO market.