Bonfire of the leveraged loans
Anyway, back to the Journal (I especially like the quote that's bolded below):
"There's nothing like a bad bust to make investors regret a good boom.
"The feeling is particularly acute in the leveraged-loan market, where during the bull years of 2006 and early 2007, investors felt emboldened to take on excessive risk.
"As a result, the rate of defaults -- instances where a company is unable to make its interest payments or meet the obligations in its debt agreements -- is higher in the loan market than it is in the junk-bond market, which has traditionally been perceived as the riskier of the two markets. To make matters worse, investors stand to recover less in leveraged-loan defaults than what was historically normal because of the riskier composition of the market.
"What that tells you about is the tremendous amount of poor quality financing in the easy money period of 2004 to 2007 and now, when the economy slows down, these companies have way too much debt and they're hitting the wall," Margie Patel, portfolio manager at Evergreen Investments, said. "It also tells you why loans have been trading, in general, at a substantial discount to face value."
"The average price in the loan market is around 88 cents on the dollar these days, according to Standard & Poor's Leveraged Commentary & Data unit, down from above 100 cents before the credit crisis."