Is the Credit Rating Stupor About to End?

I warned bond investors just the other day about potential default risk escalating. The WSJ published an article yesterday about the potential impact of rising rates on leverage loans, which financed nearly $1 trillion in acquisitions just in 2021. Quarterly repricing helps investors, but it can damage the borrower. Roughly 15% of the outstanding loans are in companies that have a coverage ratio of <1.5X. The average company is >3X. The rapidity by which the Fed is raising rates may become a heavy burden for many lower quality bonds.

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