Leveraged loans: Unwanted returns

Just when Wall Street’s leveraged loan headache had subsided to a manageable throb, more pain threatens. The amount of buyout debt stuck on bank balance sheets has dwindled. But loans repackaged for hedge funds are ending up back with banks as the schemes unwind. Worse, no one knows the extent of the potential exposure. At the crux of problem are total return swap (TRS) programmes. These have been used to give hedge funds the returns and risks of bundles of junky loans without the need to actua...