Business demand for high-risk loans on the rise
Thursday, August 01, 2013 2:52 PM
The riskiest U.S. companies are stepping up their borrowing in the market for leveraged loans, with the amount of financing completed this year already exceeding what such companies raised in all of 2012., Bloomberg reported.
Borrowers, including H.J. Heinz Co. and Valeant Pharmaceuticals International Inc., have tapped non-bank lenders for $298.4 billion in 2013, more than the $295.3 billion obtained last year, according to Standard & Poor's Capital IQ Leveraged Commentary and Data. At the current pace, the record of $386.6 billion in 2007 will be eclipsed before year's end.
Rather than leveraging up, more than half of the loans made this year have been used to reduce interest costs or extend maturities as companies take advantage of investor demand to strengthen their balance sheets. Investors added a record $2.1 billion last week into funds that buy loans, bringing the total for the year to more than $40 billion, according to Bank of America Corp.
"We have seen significant demand" for high-yield, high-risk loans, said Scott Baskind, the co-chief investment officer for the senior secured bank loan team in New York at Invesco Ltd., which oversees $22 billion of the debt, Bloomberg reported.
More loans that aren't tied to refinancings may be completed by year's end as merger and acquisition activity heats up, Baskind said, following a 17 percent drop in the number of leveraged buyouts from the same period of 2012. Read more.