Leveraged Loans Blow Out. Distressed Corporate Debt Spikes | Wolf Street
And over the five trading days ended March 18, these were the top losers by sector, in terms of price drops of their leveraged loans, according to LCD:
Air transport: -15.4%
Oil & Gas: -15.2%
Lodging & casinos -14.5%
Movies, Leisure goods, activities: -14.2%
Nonferrous metals and minerals: -14.2%
Companies whose loans trade at distressed levels have a very difficult time borrowing new money to meet their cash flow needs, pay interest, and pay off maturing debts. But these companies have cash flows that are not adequate to service their debts – which is one of the reasons they’re junk-rated in the first place.
And when corporate debt blows up, it has an immediate impact on the real economy: At that point, these companies have to restructure their debts either in bankruptcy court or outside of it, which nearly always leads to layoffs, cost cuts, and slashed capital expenditures, which then ripple through the rest of the economy, thereby acerbating the downturn.
The bubbles are popping.