NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) has issued a new research report entitled “Participation in Leveraged Loans: It’s Not Just About Credit Risk.” The report makes the following key points:
- Even as banks have decreased their exposure to residential mortgage loans, bank exposure to leveraged lending has risen dramatically. KBRA believes that the $1 trillion total asset leveraged loan market poses a significant and growing source of credit risk to U.S. depository institutions and investors. Further, KBRA believes that the full extent of the risk posed by leveraged loans as an asset class is not adequately understood by investors, regulators, and the markets as a whole.
- In addition to the well-documented credit risk posed by leverage loans, KBRA believes that the widespread practice of participating shares of leveraged loans represents a significant additional risk to financial institutions and other investors from this asset class.
- The significant decline in oil prices over the past several months illustrates an area of risk to banks and investors that is directly connected to leveraged loans. Just as the oil price bust of the 1970s resulted in the failure of banks such as Penn Square Bank and Continental Illinois National Bank, among others, KBRA believes that the latest decline in oil prices could have a substantial impact on investors in leveraged loans to companies in the petroleum sector.
About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).