A Market Crash Is Nothing More Than A Period Where Low Risk Premiums Are Pushed Abruptly Higher

Leveraged loan rush sees borrowers gain power – credit quality and lender protections disappear

Two years ago Valeant was under investigation by the US Securities and Exchange Commission and investors were questioning its opaque accounting. That meant the Canadian drugmaker had to pay dearly when it amended the terms of its loans to reduce its risk of default.

Now, the company, which in July will rebrand itself as Bausch Health, is firmly in control of the refinancing of a loan. The reversal in the balance of power between the drugmaker and investors is a striking example of white-hot demand for leveraged loans, or those made to speculative grade-rated borrowers.

Investor appetite for floating-rate debt is high as the US Federal Reserve stays on track to raise borrowing costs this year. This means companies such as Valeant have a wide open window for refinancing their existing loans — and on favourable terms.