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Leveraged Loan Market

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What is a leveraged loan?

While there is no universally accepted definition, leveraged loans are generally considered to be loans extended by financial institutions to sub investment grade (lower than BBB-) corporations that already have significant levels of debt.

The US Federal Reserve (Fed) and the European Central Bank (ECB) define them as any loan granted to a company whose outstanding debt is more than four times its annual earnings and at the end of 2021, the level of leveraged loan issuance was at an all-time high.

While Europe limits the amount of debt that can be taken on to six times EBITDA, the US removed the limits resulting in organisations being well in excess of six times EBITDA. Loans are senior, meaning loan investors rank higher in the capital structure than other creditors (including bond investors) and get repaid first if there is a default. They are also secured, meaning investors have a claim on the assets of the borrower if a default happens. In contrast, most bonds are unsecured.

To put this into perspective, while 50% of the junk bond market borrowers carry credit ratings near the top of the investment grade level, only 25% of the leveraged loan borrowers have a rating of BB, while the remaining group are lower. With ending recession fears, many credit strategists are on the lookout for a wave of downgrades and subsequent defaults.

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Leveraged Loan Market

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Related Experts
United Kingdom

Robert Campkin

Managing Director

EMEA Headquarters, London

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United Kingdom

Marvin Arras

Associate Director | Corporate Capital Solutions

London - West End

Marvin has several years of experience in financial analysis and  structured corporate finance. He has gained his financial expertise while  living in Europe and East Asia. Marvin is specialised in providing advanced  financial analysis of strategic real estate portfolio allocations, sale and  leaseback transactions, corporate structured finance products and lease  accounting strategies to Colliers’ clients.

His main responsibilities include structuring of complex corporate and capital  market transactions, investment scenario analysis and the management of real  estate transactions.

Marvin has worked on various deals relating to capital raising, refinancing,  capital restructuring and corporate acquisition financing for large global  enterprises.

Prior to working at Colliers International,  Marvin was working at Mizuho Bank where  he was part of the European Corporate  Finance team, specializing in securities  analysis; assessing how M&A and  refinancing impacts the capital structure of  corporate clients. Before his time at Mizuho  Bank, Marvin worked within the corporate  finance team at Ernst & Young in Berlin and  was involved in providing strategic audit  advice to global clients.

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