$1.2 trillion in risky corporate debt echoes subprime mortgage crisis
WASHINGTON ââ Indebted borrowers increasingly take out high-interest, adjustable-rate loans that are packaged into securities and sold to investors eager for a better rate of return.
Everything's fine while the economy is growing. But when it slows, those borrowers could default, causing problems that cascade through the financial system.
If that seems like the subprime housing market in the boom years before the 2008 financial crisis, you're right. That's what increasingly has regulators, lawmakers, ratings agencies and some market watchers worried.
This time, however, the borrowers in this credit bubble aren't homeowners taking out mortgages. They're hundreds of U.S. companies with weaker credit ratings, many of them well-known like Uber and Burger King, taking out so-called leveraged loans.
Those loosely regulated loans often are used to fund corporate deal-making. But those deals, known as leveraged buyouts, can go bad because of the large debt load, as happened with the demise last year of Toys R Us.
There is about $1.15 trillion in outstanding U.S. leveraged loans - a record that is double the level five years ago - and those loans increasingly are being made with less
