Why did US leveraged-loan issuance hit a record high in July, and how did this impact junk-rated borrowers?

The record high in US leveraged-loan issuance in July can be attributed to several factors:

1. **Economic Conditions**: The recent economic expansion and low interest rates have provided an environment conducive to businesses seeking funding. Companies have taken advantage of the favorable conditions to increase their debt levels.
2. **Refinancing and Mergers**: Leveraged loans are often used for refinancing existing debt or supporting mergers and acquisitions, especially leveraged buyouts. The availability of these loans allows companies to recapitalize their balance sheets or finance acquisitions.
3. **Investor Demand**: There is significant investor demand for leveraged loans, driven by the potential for high returns. This demand has outpaced the supply of leveraged loans, leading to a bidding war for deals and record issuance volumes.
4. **Spread Compression**: The compression of interest spreads on leveraged loans has made them more attractive to investors. This has allowed issuers to save on interest expenses and has contributed to the surge in issuance.

The impact on junk-rated borrowers is significant:

1. **Lower Interest Expenses**: For junk-rated borrowers, the ability to refinance debt at lower interest rates through leveraged loans can lead to substantial savings on interest expenses. This can be a critical lifeline for companies with high levels of debt and poor credit histories.
2. **Increased Flexibility**: The proceeds from leveraged loans can provide much-needed liquidity and flexibility to these companies, allowing them to respond to changes in economic conditions and pursue growth opportunities.
3. **Risk of Default**: While the benefits are substantial, the use of leveraged loans increases the risk of default. The higher levels of debt and lower liquidity can make it more challenging for companies to respond to economic shocks, potentially leading to defaults.

In conclusion, the record high in US leveraged-loan issuance in July is a result of favorable economic conditions, refinancing needs, investor demand, and spread compression. For junk-rated borrowers, this issuance has provided a lifeline in the form of lower interest expenses and increased flexibility, but it also increases the risk of default.