$1.2 Trillion in Risky Corporate Debt Ready to Blow
January 22nd, 2019Via: Los Angeles Times:
Indebted borrowers increasingly take out high-interest, adjustable-rate loans that are packaged into securities and sold to investors eager for a better rate of return.
Everything’s fine while the economy is growing. But when it slows, those borrowers could default, causing problems to cascade through the financial system.
If this all sounds like the subprime housing market in the boom years before the 2008 financial crisis, you’re right. And that’s what increasingly has regulators, lawmakers, ratings agencies and some market watchers worried.
This time, however, the borrowers in this credit bubble aren’t homeowners taking out mortgages. They’re hundreds of U.S. companies with weaker credit ratings, many of them well-known like Uber and Burger King, taking out so-called leveraged loans.
…
The risks aren’t nearly as widespread as they were during the housing bubble, when the percentage of all mortgages that were subprime jumped to about 20%. Leveraged loans, while growing rapidly, account for less than 5% of the more than $42-trillion U.S. fixed income debt market, which also includes corporate and municipal bonds.
