Japanese banks might have snapped up a third of the loans made to highly indebted U.S. companies, propelling the size of the market past $1 trillion, a new estimate from UBS Group AG suggests.
Years of low yields spurred investors to pour money into leveraged loans — credit extended to companies with the weakest balance sheets. Such assets were pitched as a haven for those worried about the prospect of rising interest rates, and were often repackaged into so-called collateralized loan obligations (CLOs) with credit enhancements to protect investors.
Now the worry is that cracks are beginning to develop in what was once one of the hottest products on Wall Street. A record $2.53 billion was yanked out of leveraged-loan funds in the week ending Dec. 12, while Wells Fargo & Co. and Barclays PLC recently took the rare step of pulling a $415 million deal from the market. Just 0.9 percent of U.S. loans tracked by Citigroup Inc. trade above par, or face value, compared with more than 70 percent just a few months ago.