Investors holding almost $1 trillion of the lowest-rated U.S. investment-grade corporate bonds are at a greater risk of losses as the pace of buyouts surges to the fastest pace in six years because the debt offers few protections.
About $940 billion, or 58 percent of the $1.6 trillion of securities in the Bank of America Merrill Lynch US Corporate Index with ratings in the BBB tier, lack safeguards that would allow creditors to sell the debt back to the issuer at a premium in the event of a merger, according to data compiled by Bloomberg. Leveraged buyout deals from H.J. Heinz Co. and Virgin Media Inc., totaled $51 billion last month, the most since April 2007, according to JPMorgan Chase & Co.
Investors who have seen gains in the debt of almost 59 percent since the 2008 collapse of Lehman Brothers Holdings Inc., now face the threat of their claims being weakened by more senior-ranking lenders financing buyouts. Borrowers have already obtained more than $160 billion in speculative-grade loans this year, compared with $300 billion in all of 2012, according to JPMorgan.
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