Can someone explain the primary difference between the two? I've been reading articles and terms seemed to be used interchangably in some cases and a distinction made in others . From what I can tell, leveraged loans are higher on the debt spectrum and and can be investment grade.
Can someone please comment? Thanks.
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Investment grade = BBB+ and above... Leveraged loans = BB+ and below
leveraged loans are costlier, riskier and most of the time are used in acquisitions of companies that may default if troubled times come.... they sit higher in the capital structure only if the loan has a security / collateral package on the assets ie seniority, if not then it's a riskier loan and probably not even rated (ex. a junior capital loan)...
Investment grade = BBB- and above...
Many times leveraged loans will be used in LBO acquisitions when it is an extremely risky transaction that requires a very high interest rate.
But what's difference between lev loan and HY bond then? To me they're the same thing even though I've read articles about converting lev loans into HY bond in the current markets.
Ukon, you're right, I deal with such junk instruments on a daily basis I forget what the ceiling is...
the difference between a bond and a loan is huge... for starters one is a loan, the other is a bond...
loans are kept by Qualified Insititutional Buyers while bonds are sold to the public... HY bonds price so high because they're even more junior to a loan... both are leveraged forms of capital, it's just that the loan has alot more security and has access to private side information not privy to public bonds...
Loans are more onerous in terms of coventants and contractual obligations whereas bonds are less stringent. Since loans are held and monitored closely by the bank, usually in very large amounts, and require detailed monthly/quarterly reports action can be alot quicker among the syndicate and swifter should the Company hiccup whereas the nature of 100+ passive investors holding a bond make it difficult to pressure a firm unless you're a significant holder. the dynamics go deeper but I'm just trying to drill the point home that you should google the difference between bonds and loans...
what do you think about a leveraged loans sales position interms of pay (10 yrs experience) and future transferability?
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