Participation in Leveraged Loans: It's Not Just About Credit Risk

6 Pages Posted: 18 Dec 2014  

Richard Christopher Whalen

Economic Advisory Committee of FINRA; Indiana State University - Networks Financial Institute; Association of Private Enterprise Education (APEE); National Association of Business Economists (NABE)

Date Written: December 10, 2014

Abstract

Even as banks have decreased their exposure to residential mortgage loans since 2008, bank exposure to leveraged lending has risen dramatically. The $1 trillion total asset leveraged loan market poses a significant and growing source of credit risk to U.S. depository institutions and investors. Further, the full extent of the risk posed by leveraged loans as an asset class is not adequately understood by investors, regulators, and the markets as a whole. In addition to the well-documented credit risk posed by leverage loans, KBRA believes that the widespread practice of participating shares of leveraged loans represents a significant additional risk to financial institutions and other investors from this asset class.

Keywords: Leveraged loans, loan participation, leveraged lending, true sale, energy loans, banks, FDIC, Receiver, bankruptcy

JEL Classification: G1, G2, G10, G18, G,20, G28, G33, G38, K20, K22, K23, N2,

Suggested Citation

Whalen, Richard Christopher, Participation in Leveraged Loans: It's Not Just About Credit Risk (December 10, 2014). Available at SSRN: https://ssrn.com/abstract=2539311 or http://dx.doi.org/10.2139/ssrn.2539311

Richard Christopher Whalen (Contact Author)

Economic Advisory Committee of FINRA ( email )

1735 K Street NW
Washington, DC 20006
United States

HOME PAGE: http://tinyurl.com/2bne6p

Indiana State University - Networks Financial Institute ( email )

Terre Haute, IN 47809
United States

HOME PAGE: http://tinyurl.com/4ckcoxo

Association of Private Enterprise Education (APEE) ( email )

313 Fletcher Hall, Dept. 6106
615 McCallie Avenue
Chattanooga, TN 37403-2598
United States

HOME PAGE: http://https://www.apee.org/

National Association of Business Economists (NABE) ( email )

1920 L St. NW, Suite 300
Washington, DC 20036
United States

HOME PAGE: http://www.nabe.com

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