Bad Paper

Highly leveraged companies are often drawing down on lines of credit, a potential problem for banks. Bradley Rogoff, analyst at Lehman Brothers is quoted in a recent Financial Times article, “The easy conclusion to make is that a lot of companies may now draw on their revolvers because they are concerned about counterparty risk and the implications of banks’ trying to walk away from the deal” .

These increases in outstanding debt to highly leveraged borrowers comes at a time when banks are trying to clean up their balance sheets and reduce risk.