Watchdogs are worrying about a booming corporate-credit market

INVENTORS OF FINANCIAL terminology have little love for language. “Leveraged loans” are at first sight a tautology: in fact they are loans, usually arranged by banks among a syndicate of lenders, to highly indebted companies. “Collateralised loan obligations” (CLOS) are another mouthful. These are not abstract nouns but legal entities, run by asset managers, private-equity firms, hedge funds or others, that own more than half of American leveraged loans. CLO managers chop the loans into slices and sell the parts to match their investors’ appetites for risk.

However ugly its terms, both borrowers and investors have discovered beauty in the market for leveraged loans. Some financial watchdogs, with memories of the crisis of 2007-08 still fresh, fear that the loans will soon lose their looks. In recent days Janet Yellen, who headed the Federal Reserve until January, and Daniel Tarullo, the Fed’s chief bank supervisor after the crisis, have joined the chorus of concern.

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via The Economist: Finance and economics Business Feeds

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