Rising interest rates cause the credit market to collapse

Frankfurt They were the fuel for record-breaking mergers and acquisitions. The zero interest rate policy of the central banks ensured that company buyers in “mergers and acquisitions” (M&A) could rely on very cheap so-called leveraged loans, i.e. loans for already highly indebted companies or companies with poor credit ratings. But with the war in Ukraine, rising interest rates and the prospect of a recession, the market for such loans has come under extreme pressure.

In the first three quarters, these loans fell 38 percent worldwide from $1.22 trillion to $761.9 billion. This emerges from an analysis by the data provider Refinitiv for the Handelsblatt.

In the USA and Europe in particular, market participants are preparing for increasing bad debts as a result of the economic slowdown. That is why takeover financing hardly takes place anymore. Because the rapidly increasing energy costs in Europe could cause more payment defaults among companies as early as the fourth quarter.