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Wall Street Shifts Risk of Burning Bed in Loans

Investors chasing yield are taking on more and more risk without being compensated for it.

By Kristen Haunss, Bloomberg | Updated on July 02, 2014

Wall Street banks, burned by commitments to fund leveraged buyouts before the credit crisis, are reducing the chances they’ll be stuck with junk-rated loans again by getting investors to take on that risk.

Banks and borrowers are benefiting as investors agree to set aside money to finance acquisitions, such as Carlyle Group LP’s takeover of Ortho-Clinical Diagnostics Inc., weeks before deals are closed. Money managers often get paid nothing for being in limbo while letting issuers lock in their interest rates. Usually, banks give investors their allocations only days before providing loans.

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