Walking the money for the rest of us, this is a personal financial show on money, how

it works, how to invest it, and how to live without worrying about it.

I'm your host David Stein, today is episode 423.

It's titled, A Safe 6% Yield, the Case for Investment Grade C-L-Os.

About five years ago, in episode 205, we discussed a rather obscure asset class that goes by

multiple names.

The names include leveraged loans, syndicated bank loans, floating rate loans, or senior loans.

These are loans issued by banks to non-investment grade companies, and those loans are then sold

or syndicated into the market.

Buying and selling of these loans is not as smooth as it is to purchase a stock.

The settlement time for a transaction to go through can be upwards of 20 days compared

to two days for most securities.

Leveraged loans are called senior loans because they have to be paid before any other debt

that the company may have on its balance sheet.

Another advantage of these leveraged loans is their variable rate loans.

They pay an interest rate that is tied to short-term interest rates.

They pay more, there's a spread above the short-term base rate that is used to calculate

the yield, but because it's variable rate, there is no interest rate risk.

These loans don't go down in price when interest rates increase.

Leveraged loans do have risk, there's default risk, because again, these are non-investment

grade.

These are not the most stellar credits, and so it's often helpful to have an active

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