The IMF does not pull any punches in its latest post on the IMF blog. It is really worried that so-called ‘leveraged loans’ are reaching dangerous levels globally. These loans, usually arranged by a syndicate of banks, are made to companies that are heavily indebted or have weak credit ratings. They are called “leveraged” because the ratio of the borrower’s debt to assets or earnings significantly exceeds industry norms. The level of these loans globally now stands at $1.3trn and annual issuance is now matching the pre-crash year of 2007.
“With interest rates extremely low for years and with ample money flowing though the financial system, yield-hungry investors are tolerating ever-higher levels of risk and betting on financial instruments that, in less speculative times, they might sensibly shun.” says the IMF. About 70% of these loans are in the US; so that is where the risk of a…
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