Speculative-Grade Loans Attracting Record Cash

Investors are funneling funds into leveraged loans, raising risks by increasing incentives for borrowers to refinance.

More speculative-grade U.S. loans are trading above par than at any time since May, exposing investors who are funneling record amounts of cash into the debt to greater risks as rising prices encourage borrowers to refinance at lower interest rates.

Spanish-language broadcaster Univision Communications Inc. and KKR & Co.-controlled First Data Corp. are among at least 30 companies seeking to reduce rates on $31 billion of bank debt as more than 80 percent of leveraged-loan prices exceed 100 cents on the dollar, according to JPMorgan Chase & Co. That’s up from 40 percent at the beginning of October, according to a report from the New York-based lender last week.

The U.S. central bank is trimming its monthly asset purchases by $10 billion, the Federal Open Market Committee said Dec. 18. The Fed will probably reduce its bond buying in $10 billion increments over the next seven meetings before ending the program in December 2014, according to economists surveyed by Bloomberg in December.

Investors have sought to shield themselves from rate reductions by seeking call protection. Almost all of the new loans being issued last year had such restrictions placed on borrowers from replacing or refinancing credit pacts, up from about 40 percent four years ago, according to Barclays.

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