Leveraged Loans
The syndicated loan market is the dominant channel through which issuers around the world obtain loans from banks and other capital-providing institutions. Some borrowers in this market are high quality investment-grade companies, which typically borrow through unsecured revolving credit facilities. A large part of the market, however, consists of lending to lower quality sub-investment-grade borrowers. These so-called leveraged loans can be much more difficult to analyze than investment-grade loans, due to the high leverage (and hence high credit risk) of the issuer, heavier reliance on security and collateralization, complicated corporate structures, and complex covenant packages. They also constitute the overwhelming majority of loans traded in the secondary market.
In this course, we offer an overview of the leveraged loan market and discuss key drivers of credit risk for leveraged borrowers and leveraged loans.
Course Objectives
By the end of the course, participants will be able to:
- Describe the development and composition of the syndicated loan market
- Explain why companies issue leveraged loans and why investors invest in them
- Discuss recent trends in the market for leverage loans
- Explain the role of covenants in lending agreements and describe the main covenants encountered in leveraged loans
- Explain how collateral and other types of security affect risk in leveraged loans
- Explain how contractual and structural subordination affect credit risk
- Define events of default and describe possible responses to technical and payment defaults, including waivers, amendments, restructuring, and liquidation
- Discuss factors that affect recovery rates on leveraged loans
- Discuss the role of credit ratings in the leveraged loan market
- Define and interpret key financial ratios and explain how they can be used to assess the financial health of leverage borrowers
- Discuss ways in which leveraged lending may contribute to systemic financial risk
- Discuss recent and likely future developments in the market for leveraged loans
Suggested Prerequisites: None
Program Level: Foundational
Advance Preparation: None
Computers and Financial Calculators: N/A
Recommended CPE Credits: 7
Duration: 1 day