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News Link • Federal Reserve

Fed Issues More Warnings on Danger of High-Risk Company Debt

•, By Jesse Hamilton and Craig Torres

The U.S. central bank's latest financial stability report said leveraged-lending issuance grew 20 percent last year, and that protections included in loan documents to shield lenders from defaults are eroding. While the Fed board voted unanimously to approve the report, it didn't indicate any course of action the governors might take to rein in the red-hot market.

Lawmakers, International Monetary Fund officials and even former central bankers have increasingly questioned whether the Fed and other watchdogs are adequately worried about leveraged loans, which often underpin mergers and acquisitions involving highly indebted companies.

A particular concern is that businesses that employ thousands could face severe financial stress and, in some cases, insolvency in an economic downturn.

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