Leveraged Loans at Risk From Higher Financing Costs: Algebris

The video discusses the performance and conditions of the leveraged loan market, highlighting its strong performance in October and the significant demand for Cielo issuance. It examines the market's technical aspects, including the impact of high yield outflows and the attractiveness of floating rate components. The discussion also covers the risks associated with top-heavy capital structures and the potential impact of rising interest rates on borrowing costs. Investment strategies are explored, emphasizing the importance of understanding market dynamics and the implications of changing interest rates.

What was the state of the leveraged loan market in October?

• It was the slowest month of the year.

• It was unaffected by Cielo demand.

• It was the busiest month since May.

• It showed a negative return.

What is one of the main attractions of leveraged loans?

• Low demand

• Fixed interest rates

• Floating rate component

• High default risk

How is the composition of the high yield loan market changing?

• Less involvement from Scielo groups

• More focus on fixed rate bonds

• Increasing top-heavy capital structures

• Decreasing participation by retail investors

What is a potential risk of rising interest rates for companies with leveraged loans?

• Higher refinancing costs

• Lower borrowing costs

• Decreased refinancing costs

• Improved balance sheet strength

What is a concern for top-heavy capital structures in the context of rising yields?

• Increased recovery values

• Higher cost of debt at the wrong time

• Lower refinancing rates

• Decreased cost of debt