Many Companies That Gorged on Leverage Loans Are Now Grappling With Liquidity Crises

The aggressive monetary tightening has severely impacted US high-risk borrowers who previously depended on low-interest rates. With rates now around 5%, companies with leveraged loans linked to floating rates are struggling with liquidity issues. The LSTA Leveraged Loan index shows a steep drop in earnings growth and a significant decline in the average EBITDA to interest expense ratio. This scenario suggests heightened risk, especially for businesses heavily reliant on floating rate-leveraged loans, as they now face severe challenges in the current high-rate environment. A potential downturn could exacerbate these risks significantly.