One of the hallmarks of late-stage bubbles is a shift of power from lenders to borrowers. As asset prices soar and interest rates plunge it becomes harder to generate a decent yield on bonds and other fixed income securities, so people with money to lend (like pension funds and bond mutual funds) are forced to accept ever-less-favorable and therefore far-more-risky terms.
Recall the liar loans that were popular towards the end of the 2000s housing bubble and you get the idea. Lenders were so desperate for paper to feed the securitization machine that they literally stopped asking mortgage borrowers to prove that they could cover the interest.
Here we go again, but this time in the market for leveraged buyout loans:
Yield-Starved Investors Giving In to the Demands of Bond Sellers
(Wall Street Journal) – Demand for leveraged loans is allowing private-equity firms to water down legal safeguards for investors Hellman & Friedman LLC and other investors sought last month to borrow money in the bond market to finance a takeover.
The U. S. private-equity firm offered a yield of about 3%, but few of the protections once considered routine.
Still, the investors bought.
This post was published at DollarCollapse on DECEMBER 27, 2017.