Bloomberg Businessweek - USA (2019-06-17)

F I N A N C E

26

Edited by

Pat Regnier

and David Rocks

● Loanstofinanciallyweak

companiesarebooming,and

regulatorsmaybein thedark

How Dangerous Is

All This Debt?

There’sbeena steadydrumbeatofwarningsabout

a surgeinriskycorporateborrowing—butnotmuch

clarityabouthowseriousthethreatis.Atissueis

themorethan$1trillion market in leveraged loans.

That’s Wall Street jargon for high-interest loans

to business with less than rock-solid finances.

Federal Reserve and European Central Bank offi-

cials have drawn attention to the rise in corporate

debt and the deterioration of lending standards.

The loans are often bundled into securities known

as collateralized loan obligations (CLOs).

Most of the watchdogs are careful to say a

repeat of the 2007-2008 crisis is unlikely because

most of the debt isn’t held by banks. But that cre-

ates another problem: Regulators focused on banks

are largely in the dark when it comes to pinpoint-

ing where the risks lie and how they might ripple

through the financial system when the economy

turns down. A big worry is that over-indebted

businesses could face severe stress and, in some

cases, insolvency, threatening jobs and deepen-

ing the next downturn. “I always remind myself

that even the smartest policymaker with the most

far-reaching perspective, data, and tools was basi-

cally blindsided by the breadth and depth of the

housing crisis,” says Mark Spindel, chief investment

Bloomberg Businessweek June 17, 2019