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Leveraged Loan Safety Net May Prove Frayed for Investors

  • Safeguards for money managers are weakening as market grows
  • Companies are taking on more debt, and recoveries may fall
Updated on

It was enough to set investors’ teeth on edge.

When KKR & Co. tried to sell money managers pieces of a $1 billion loan to fund its buyout of Heartland Dental, it included a bold ask: it wanted credit now for earnings the company expected to get in the future from offices it had just opened. That helped nearly double a measure of income that will be used to test whether the dental-office services company is making enough money to keep borrowing, according to people with knowledge of the matter.