It’s been called the most mispriced security on Wall Street. It’s also the least-known casualty of bank regulatory reform. Welcome to the revolving credit facility. For decades the workhorse of commercial financing, a revolving credit operates like a credit card supporting a corporate borrower’s receivables and inventory. It’s typically made available by commercial banks in…
A banker friend vacationing in Greece this week reports asking a fifty-something customer in an Athens coffee shop what he did for a living. The man responds he’s been unemployed for the last four years. “The Greeks invented everything,” he said, “and now I’m taking a rest.” Certainly seems like déjà EU all over again:…
It’s said that a great tree cannot truly be measured until it falls. The untimely passing last week of Jimmy Lee, JP Morgan Chase’s vice-chairman, at the age of 62, left many in the banking world reflecting on the legacy of a man who transformed buyout finance. While tributes have noted Jimmy’s extensive contributions to…
Our mailbag was overflowing in response to last week’s column on the topic of repayment trends in leveraged loans. Readers mostly bemoaned the lack of discipline by lenders in compelling borrowers to reduce debt in the form of real amortization. We considered how quaint the notion has become of borrowers actually repaying debt over the…
One bedrock tenet of sound lending practices is establishing the borrower’s capacity to repay its debt over the contractual life of the obligation. So it’s not surprising that regulators have taken banks to task in recent reports highlighting a growing number of leveraged loan issuers which lack that capacity. Specifically, in its 2014 Leveraged Loan…
“The idea that the loan market could trade the floors that exist today for additional spread is pure fantasy.” – Beth MacLean, bank portfolio manager, PIMCO. It’s March 2008. The Fed has dropped rates precipitously to forestall a liquidity crisis. One-month Libor craters to 2.8% from 5% only three months before. Libor spreads for single-B…
Amid all the wondrous frolicking enjoyed by many this past holiday weekend, we were reminded again of one corollary to good parenting: Otherwise well-mannered children get into trouble when not occupied with constructive activities. That observation came to mind on reading an interesting note yesterday from content partners S&P Capital IQ. They report that May…
One of the fundamental differences between investing in broadly syndicated and middle market loans is the nature of the due diligence associated with those asset classes. The world of lending to large, liquid issuers is driven by public information. Investors use widely available ratings and price data on companies over $100 million in Ebitda to…
In the previous two issues of our special series on the state of credit standards in the leveraged lending market, we took a deep dive on covenant trends. This week we take a step back and look at the overall picture of middle market credit fundamentals. So much of leveraged lending is tied to the…
The response to last week’s column, as we initiated our special series on the state of credit standards in the leveraged lending market, was heartening. Readers enthusiastically supported the notion that industry players need to be reminded of the basics of credit risk and why it’s critical to stick to the fundamental tenets of sound…