If you ask anyone at The Fed (apart from Jeremy Stein) if there is a bubble in the credit markets, the answer is definitive "no" since bubbles are always obvious. Well, hopefully, the following chart will make it "obvious" that the Fed's policy has driven a 'reach for yield' so excessive as to explode the growth of so-called cov-lite loans. This 'riskiest of risky' loan issuance, while already at record high levels, has now massively exceeded the previous bubble in terms of percent issued as the demand for anything with yield 'enables' the worst of the worst companies to refinance their zombie-like existence.
Of the $644.4 billion loans issued, $293.35 billion was Covenant-lite...
Cov-lite issuance is over 45% of all loan issuance in 2013!!!
(bear in mind that the great majority of this issuance is being used for refinancing - not capex or growth-related spending)
In context - that is more than double the amount of the last bubble peak!!
With firm leverage at record highs...
...and record margin debt in stocks, as we warned two months ago, record-high exposure to these risky credit structures (and the re-emergence of CLOs to concentrate them) is, we are sure, nothing to worry about... because it's different this time.
[Addenda: while December is always a slower month, we do note that Cov-Lite issuance is at its lowest since the mid-sumer Taper tantrum... - perhaps risk is being repriced a little?]