Leveraged Loans Best for CDOs?

Husband, Sarah
June 2003
Investment Dealers' Digest;6/9/2003, Vol. 69 Issue 23, p14
Trade Publication
While leveraged loans have proven more stable and less risky collateral for collateralized debt obligations than high-yield bonds, there are doubts over their presence in structured vehicles, as ultimate recovery rates on bank loans are declining in the U.S. as of June 2003. Bank loan ultimate recovery rates have been falling since 1996, and from 1998 to 2002, stood at 74.1%, according to David Keisman, managing director for risk solutions at Standard & Poor's Corp. Worsening structural quality plays a role in declining senior unsecured bond recovery. However, collateral and the extent of the debt cushion play an important role in determining the ultimate recovery rates for bank loans, Keisman said. Bank debt with a debt cushion of 50% or more, and collateralized by all assets, had a much higher ultimate recovery rate than all other bank debt.


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