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U.S. banks' direct exposure to leveraged loans is contained: Moody's

Feb. 20, 2019 3:01 PM ETXLF, IYF, IYG, VFH, RSPF, EVF, EFR, VVR, UYG, JFR, FCT, FXO, BRW, SEF, FAS, FAZ, RWW, BSL, PHD, TLI, BTO, BKLN, OXLC, AFT, BGX, SRLN, FINU-OLD, FINZ, BGB, FTSL, FSLF, FNCL, ECC, JHMF, HYSABy: Liz Kiesche, SA News Editor16 Comments
  • U.S. banks' direct exposure to leveraged loans is contained and mitigated, Moody's Investors Service says in a new report.
  • However, indirect risks could become more important to banks' creditworthiness if operating conditions materially worsen, the credit-rating company says.
  • "U.S. banks' healthy earnings and strong capital buffers should be adequate to absorb the direct risks from leveraged loans on their books and their holdings of collateralized loan obligations," says Moody's Associate Managing Director Andrea Usai.
  • Rising interest rates, tightening market liquidity, or an economic downturn can lead to refinancing risk or declining loan valuations. And a downturn in leveraged loan performance could spread to other lending segments, or asset classes, the report says.
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