C.L.O.

Wall street is doing the same thing they did in 2007 by depending upon debt.There has been gold rush for companies to borrow as high yield debt interest rates are at knee down.And who are the beneficiary of this covenant-lite bank debt? none other than the Private Equity,which depends on high yield debt so they can borrow as much as they can. So far,$17 billion worth of covenant-lite debt has been issued ! Covenant-lite deals provide Private Equity firms to rescue a company from bank takeover, I agree.But they do more harm than good. This kind of debt has cheer those companies to restructure their debt very aggressively.Yes,the Banks can convert this debt into Collateralized loan obligation or C.D.O.But looking at the C.L.O market,which is in nocens state, I doubt that Bank could not convert those debt into C.D.O. So,what should be done to prevent another financial crisis? The regulator must force those Banks to hold more capital and be little cautious in terms of lending.The regulator must cap a leverage,so the Banks can't lend easily.