The Justa and Lars Honors Bob Brinker Investment Club Thread Message Board

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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread

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Jan 20 4:00 PM EST

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Boca_PETE

To: Boca_PETE who wrote (8443)	12/13/2014 5:32:31 PM
From: ETF1	1 Recommendation Read Replies (1) of 10065

dealbook.nytimes.com ".....Wall Street would appear to be doing its job of matching companies that need capital with investors who can provide it. After banks like JPMorgan Chase and Bank of America make loans to the companies, they turn around and sell the debt to hedge funds, pensions and even mom-and-pop mutual funds. These leveraged loans, as the debt is known on Wall Street, funnel money to companies that might otherwise struggle to finance their ambitions." "Leveraged loans are made to companies with low credit ratings that could suffer high losses in a downturn" "The amount of these loans is smaller than the total for junk bonds. And unlike junk bonds, leveraged loans are secured by the assets of the borrowing corporation, meaning that lenders often recover more when borrowers default." "........standards in the leveraged loan market have become much looser in recent years. The companies that have taken out the loans are on average much more indebted than in recent years" "The special provisions within loan agreements that were once thought crucial for protecting creditors are fast disappearing. So far this year, 63 percent of leveraged loan deals lack such provisions, far higher than 25 percent in 2007......" +++++++++++++++++++++++++ Bob Brinker often says that in this environment (improving economy), he feels comfortable taking credit risk but not interest rate risk. It seems that bank loans do exactly that, take lots of credit risk but not interest rate risk. Per Morningstar, the average bank loan fund lost 30% in 2008. So in an economic downturn, they can be very risky, as the companies may have great difficulty paying back the loans.

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