Leveraged loans

Junk-rated companies and private equity firms have lined up about $17 billion of debt recently for purchases of everything from power plants to a chain of gas stations using 364-day bridge loans.

Octaura, an electronic portal backed by seven global banks, completed its first syndicated loan trades earlier this month.

Banks across Europe and the U.S. committed to lend tens of billions of dollars for leveraged buyouts and acquisitions. Now they need to find buyers for the debt, and demand is relatively weak.

The $1.38 trillion U.S. leveraged loan market is nearing an innovation that could finally shift back-office operations to a centralized system and away from investors having to manually track their positions — a process that can still include the occasional fax.

DMG Bancshares, formed by banking veteran Don Griffith, wants to buy more West Coast banks. For California First, the sale ends a four-year period in which it substantially shrank its loan book after it was ordered to shed leveraged loans.

Time and again, Janet Yellen has warned Wall Street is piling a dangerous amount of debt onto the balance sheets of risky U.S. businesses. But as she prepares to take over as Treasury secretary, she may find it difficult to do anything quickly to rein in these markets, experts say.

Defaults have been milder than expected thanks to government relief and stricter underwriting. But with the crisis dragging on and policymakers unable to agree on a stimulus plan, loans to highly indebted companies remain at risk.

While rival banks reported increases in loans and deposits, thanks largely to their participation in the Paycheck Protection Program, State Street and Bank of New York Mellon saw their balance sheets shrink in the second quarter.

The central bank's Financial Stability Report said companies may face difficulties repaying debt given lower earnings, “which could trigger a sizable increase in firm defaults."

The one-year relief is intended to free up lending to consumers and businesses; the online small business lender not making loans, shrinks credit lines, staff.