Definition:
There are two principal definitions of a leveraged loan.
One is a loan extended to a business or an individual that is already highly-indebted.
The other is a loan extended to a on-investment grade corporation. This sort of leveraged loan frequently has a floating rate that represents a premium over LIBOR.
In either case, a leveraged loan is a relatively high-risk propostion for the lender, with an increased risk of default. Accordingly, the borrower must pay a relatively high rate of interest.
Leveraged loans thus have key commonalities with subprime loans.
