Masayoshi Son and Elon Musk leveraged their dreams to the hilt. Patrick Drahi stockpiled debt to build a global cable empire. Michael Dell loaded his computer company with risky loans to buy out activists threatening his control. And a group of Chinese developers borrowed big to expand in the nation’s booming property market.
Call them the titans of junk.
But chances are that anyone who socked away cash into a retirement account during the past five years has lent them money. Investors have parked trillions of dollars in mutual funds and exchange-traded funds that buy junk bonds. Pension funds in Canada have started leveraged-finance lending operations. Insurance companies have helped bankroll leveraged buyouts. And, in an echo of the subprime mortgage bubble a decade ago, investors from Sydney to Seattle snapped up hundreds of billions of dollars in AAA rated securities known as collateralized loan obligations that are actually backed by the debt of junk-rated companies.
The article covers SoftBank, Netflix, Tesla, Altice, the factors that lead to the current debt binge and when those loans are set to mature.
It’s not as if regulators didn’t attempt to keep the borrowing in check. The three primary entities that oversee the U.S. banking system—the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.—began cracking the whip in 2013 on banks that underwrote debt that they considered too risky. One no-no: any loan deal that loaded a company with debt more than six times its Ebitda would get extra scrutiny, and barring any offsetting factors, those banks often were slapped with warnings.
But that barely made a dent. Even as the big banks turned away the riskiest borrowers, a host of firms that fell outside the purview of banking regulators—securities brokers, boutique investment banks and even pension funds—swooped in to underwrite those loans. Instead of capping leverage in the market, it continued to grow