Leveraged Loan
Corporate Credit Analysis glossary · Ratings, Syndication & Market Dynamics
Definition
A senior secured floating-rate loan, typically rated BB+/Ba1 or lower, with covenants, syndicated by a bank arranger to institutional investors (CLOs, prime funds). The leveraged-loan market is the principal funding source for LBOs.
Leveraged Loan in plain English
A leveraged loan is a big loan made to a company that already carries a lot of debt, so it's considered riskier and pays a higher, floating interest rate that rises and falls with market rates. A bank arranges it but then sells slices to many investors (like specialized funds) rather than holding it all, spreading the risk around. These loans are "senior secured," meaning the lenders are first in line to be repaid and are backed by the company's assets as a safety net. They're the main way buyout deals get funded — when an investor group borrows heavily to take over a company, leveraged loans usually supply the cash.
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