The risk of the growing market of leveraged loans

Summary

Leveraged loans are granted to entities with considerable amounts of debt, that is, according to the European Central Bank (ECB), those with a debt-to-income ratio before interest and tax of more than four.

Key points

• Key points:
• This leveraged loans market and the market relating to securitization processes using these loans as underlying assets (CLOs — collateralized loan obligations) has experienced a significant growth in recent years, reaching historical highs.
• The low interest rate environment prompted the increase in demand for this type of asset, which offers alternative higher returns.
• The further continuation of the recently announced accommodative monetary policies, announced by the main central banks, could prolong their growth.

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