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