A "house of cards" is one description of the state of today's corporate debt markets according to "Sketchy Loans Abound" in today's Wall Street Journal (subscription required). This house of cards has been built by the commercial banks, the hedge funds, the mezzanine lenders and the Wall Street machine that carves these business loans into neatly sliced packaged of risk for sale in the secondary markets.The lenders are stricken with a "don't worry, be happy" attitude because today's bonuses could suffer if someone tells the emperor he's wearing no clothes. Why worry as long as corporate defaults are at the lowest levels in more than 10 years? And why are corporate defaults so low? Is it strong cash flow by the borrowers or loan structuring techniques such as "covenant lite", "covenant holidays" and "payment-in-kind"?
In general, this market recap in The Wall Street Journal doesn't really surprise me as I've thought for quite some time that the business loan markets suffered from too much cash and perhaps too little good judgement. But from the perspective of a borrower, I say let the good times continue to roll!
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Related Tags: Wall Street Journal, business loan, bank, hedge funds, mezzanine lender, lender
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