Fed Sounds Alarm on Wall Street's Riskier Loan Deals

The leveraged loan market is experiencing a surge due to rising interest rates and floating rates. However, underwriting standards have weakened, leading to concerns about covenant light loans. Regulators have not shown significant alarm, but the Federal Reserve is monitoring the situation. Despite market volatility, leveraged loans remain attractive, with companies like SpaceX benefiting from this trend.

What is one reason for the influx of money into the leveraged loan market?

• Declining stock market

• Decreasing interest rates

• Floating rate loans

• Stricter underwriting standards

What does the term 'covenant light' refer to in the context of leveraged loans?

• Loans with fixed interest rates

• Loans with fewer protections for lenders

• Loans with high credit ratings

• Loans with high interest rates

How did Robert Kaplan of the Dallas Fed respond to concerns about leveraged loans?

• He expressed significant alarm

• He dismissed the concerns entirely

• He acknowledged the discussions but showed no immediate concern

• He proposed new regulations

What makes leveraged loans attractive despite market volatility?

• Attractive returns of about 4.5%

• Low risk of default

• High fixed interest rates

• Government guarantees

Why are companies like SpaceX receiving leveraged loans?

• They have low enterprise value

• They are traditional borrowers

• They have high enterprise value despite cash burn

• They offer high interest rates