Attack on Junk-Loans Risks LBO Profits as U.S. Cracks Down
This article is for subscribers only.
Fees for bankers and payouts for leveraged-buyout funds are at risk of being crimped as federal regulators crack down on underwriting standards in the market for high-risk, high-yield loans.
The government, in an annual review of bank credit, looked at a $429 billion sample of leveraged loans and found 42 percent were “criticized,” or classified as having a deficiency that might lead to a loss. Starting in September, it sent letters demanding banks draw up plans to improve the quality of their loans and a warning that regulators will pay close attention to high-risk loan performance in stress tests.