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Opinion
Brian Chappatta

Leveraged-Loan Lovefest Will End in Heartbreak

Moody’s sees grim future for the $1.4 trillion market when the credit cycle turns.

The good times never last forever.

The good times never last forever.

Photographer: John Macdougall/AFP/Getty Images

Moody’s Investors Service last week published an in-depth look at U.S. leveraged loans. And it seems the more the analysts dug in, the more alarmed they became.

Yes, the nearly $1.4 trillion market can take comfort in a low 3.4 percent default rate that Moody’s projects will only get lower, most likely dropping to 2.2 percent over the next year. But that’s largely where the good news ends. In its report, the credit-rating firm is emphatic that when the credit cycle takes a turn for the worse, leveraged-loan investors will be in for a rude awakening, even compared with the financial crisis.