Deutsche Bank Suffers; Leveraged Loan Loss & Corporate Bond Default Rates Rise

According to S&P...

High-yield loan prices tumbled the most in at least 11 years in the first quarter as investors fled all but the safest U.S. government assets.

Loans to companies in the U.S. with below investment-grade ratings lost 5.74% this year.

Banks are holding $213 billion of so-called leveraged loans that they can't sell.

The backlog of unsold debt means banks will likely suffer more losses as they lower prices to get loans financing buyouts for firms.

Deutsche Bank: "Conditions have become significantly more challenging during the last few weeks."

Deutsche arranged 9% of $360 billion of total debt sold in 2007, making it the 2nd largest underwriter of European high yield loans in 2007.

European Q1 sales of the debt have dwindled from $130 to $6 billion. S&P said in a press release yesterday:

the default rate for high-yield U.S. corporate bonds may rise to as much as 5.7% by February 2009 from 1.09%...

as the credit crisis makes companies more vulnerable to a slowing economy. Great time to buy financials, eh?

Hattip to Bloomberg.