![]() ![]() What about sub-participations – restrictions.Who can they transfer to (White and Blacklists).When can the lender transfer their loan (triggers).How ‘yank the bank’ and ‘snooze you lose’ clauses can be used to manipulate the syndicate.Critical voting thresholds for lenders and borrowers too (including the super-majority).Role and importance of “The Instructing Group”.Banks vs Institutions vs Direct lenders.The various types of Lenders & what they want.Issues relevant to syndicated (and club) deals Case Review Stabilus case - what are the lesson for Security and Facility Agents, Credit bidding.Case Study: Review key aspects of a term sheet in the context of a relevant deal including the market flex.Review of the 4 segments of the European leveraged loan market agreement (key differences).LMA Real Estate Development Transactions.LMA Real Estate Multi-Property Investment Transactions.Investment-grade vs leveraged/high yield - key dividing line in credit markets, why & how it matters.You should carefully read all of the fund’s available information, including its prospectus and most recent shareholder report before purchasing fund shares.Part One The key precedents in the loan market This uncertainty may impact the value and liquidity of these loans. For loans that will continue past 2021, it is unclear what interest rates may be paid. LIBOR is expected to be discontinued after 2021. LIBOR: Many leveraged loans pay interest tied to a reference rate known as LIBOR.This could leave a fund exposed to greater losses if the borrower is unable to pay back the loan. Fewer protections: Sometimes leveraged loans are “covenant-lite,” meaning they generally have fewer restrictions that protect the lender than traditional loans.This could present a challenge for a fund if it concentrates its investments in leveraged loans and needs to sell many investments quickly, which could in turn affect the value of your investment. In addition, leveraged loans typically have a long settlement period, meaning it could take the fund a long time to get its money after selling its investment. Liquidity: Leveraged loans may not be as easily purchased or sold as publicly-traded securities.While leveraged loans may be secured by collateral, the value of that collateral may not be sufficient to repay the lender if the borrower is unable to pay back the loan. This risk could be heightened if interest rates rise or the economy declines. Credit default: Borrowers of leveraged loans may go out of business or become unable to pay their debts.They could cause the fund (and you) to lose money. Like every investment, leveraged loans involve a trade-off between rewards and risks. What are some risks of investing in funds that invest in leveraged loans? ![]() Funds that invest in leveraged loans sometimes include terms like “high income,” “floating rate,” and “senior loan” in their names. How would I know if my fund invests in leveraged loans?įunds describe how they invest in the strategy section of their prospectuses, and often describe their investments on their website, in fact sheets and in shareholder reports. This could help protect the fund from losses if interest rates rise. This means that if market interest rates go up, the interest rate on the loan will also increase. Leveraged loans also typically pay a variable interest rate. Fund portfolio managers may be interested in purchasing these loans because their higher interest rates could mean a higher return for investors in the fund. Some funds may make a small investment in leveraged loans as part of a diverse portfolio, while other funds may invest heavily in these loans. Investment funds (such as mutual funds and exchange-traded funds) may hold leveraged loans in their portfolios depending on their investment strategy. These loans generally pay higher interest rates to lenders because of the higher level of risk. Lenders consider leveraged loans to have an above-average risk that the borrower will be unable to pay back the loan (also known as the risk of default). Generally speaking, a “leveraged loan” is a type of loan made to borrowers who already have high levels of debt and/or a low credit rating. Investors who own or are considering buying a fund that invests in leveraged loans should understand the fund’s unique credit and liquidity risks.
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