“What The Bubble…” Chart Of The Day: Half Of Loans Issued In 2013 Were “Covenant Lite”

December 31, 2013 Leave a comment

“What The Bubble…” Chart Of The Day: Half Of Loans Issued In 2013 Were “Covenant Lite”

Tyler Durden on 12/30/2013 15:54 -0500

20131230_covlite1_0 Median Leverage_0 (1)

If you ask anyone at The Fed (apart from Jeremy Stein) if there is a bubble in the credit markets, the answer is definitive “no” since bubbles are always obvious. Well, hopefully, the following chart will make it “obvious” that the Fed’s policy has driven a ‘reach for yield’ so excessive as to explode the growth of so-called cov-lite loans. This ‘riskiest of risky’ loan issuance, while already at record high levels, has now massively exceeded the previous bubble in terms of percent issued as the demand for anything with yield ‘enables’ the worst of the worst companies to refinance their zombie-like existence.Of the $644.4 billion loans issued, $293.35 billion was Covenant-lite…

Cov-lite issuance is over 45% of all loan issuance in 2013!!!

(bear in mind that the great majority of this issuance is being used for refinancing – not capex or growth-related spending)

In context – that is more than double the amount of the last bubble peak!!

With firm leverage at record highs…

…and record margin debt in stocks, as we warned two months ago, record-high exposure to these risky credit structures (and the re-emergence of CLOs to concentrate them) is, we are sure, nothing to worry about… because it’s different this time.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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