Moody’s Sounds Alarm Over 'Systemic Risk' in Leveraged Lending Market

Moody’s warns of escalating systemic risks in the US financial system due to a “race to the bottom” between banks and private credit funds backing high-risk leveraged buyouts. With worsening economic conditions, there’s a surge in banks and private debt sectors financing subpar deals. As private equity picks up pace and hunts bigger deals, banks attempt to reclaim their dominant position in the buyout business. However, this aggressive competition could degrade pricing, terms, and credit quality, magnifying systemic risks, especially in an already fragile economy facing rising interest rates.