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‘If you want to worry about something … this is it’: Central banks and investors are sounding the alarm
The Bank of England has raised concerns about the growth in so-called “leveraged loans” — credit given to risky companies by private lenders.
But the BoE is not alone in being alarmed. Australia’s central bank and the Bank of International Settlements have also noted the soaring use of leveraged loans, which now stand at over $US1 trillion.
Lenders have increasingly been issuing loans under looser terms, known as “covenant-lite” arrangements. While these represented a fraction of issuance a decade ago, it is now over 80% of the market.
An investment chief who runs $US100 billion at J.P. Morgan told a briefing last week: “If you want to worry about something in the next two to three years, this is it.”
The central banks of the UK and Australia have both raised red flags about the rapid expansion of so-called leveraged loans and associated products that have invited comparisons to the toxic debt vehicles that triggered the global financial crisis.
In documents published just days apart, both the Reserve Bank of Australia and the Bank of England have expressed clear concern at the growth in leveraged loans, which have doubled in issuance since the GFC and now stand at over $US1 trillion. ..... (more)
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