FSB warns of growing risks in leveraged loans, CLOs

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By Karoliina Liimatainen
19 Dec 2019

The Financial Stability Board warned on Thursday of growing vulnerabilities in the leveraged loan and CLO markets. Increased leverage, weak covenants and the rise of non-bank lenders have added risk and complexity to the market, according to the global watchdog of the financial system, and the investors don’t have enough visibility on the debt instruments they’re buying.

FSB expressed worries over the increasingly widespread covenant-lite loans, which already account for over 80% of leveraged loans in Europe and the US. Because of the weak investor protections, creditors can’t call an event of default until the company runs out of cash and skips on interest payments ...

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