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  • April 2008 (Revised December 2008)
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Leveraged Loans 2007

By: Andre F. Perold and Erik Stafford
  • Format:Print
  • | Pages:7
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Abstract

The leveraged loan market was in a crisis during the summer of 2007, following many years of low realized volatility (less than 4% per annum), an index of leveraged loans had fallen over 5% in the month of July. A sudden drop in capital market prices for an asset class can be caused by news affecting fundamental values; or by a widespread liquidity shock. The implication of a shock to fundamental value is that the price drop is permanent, whereas if the underlying cause of the price drop is caused by a liquidity event, the situation may represent a profitable investment opportunity. Investors must assess the likely cause of the recent price drops in the leveraged loan market and determine an appropriate investment strategy.

Keywords

History; Financial Liquidity; Investment; Financial Crisis; Market Transactions; Disruption; Decision Choices and Conditions; Competitive Strategy; Capital Markets; Crisis Management; Commercial Banking; Banking Industry; Financial Services Industry

Citation

Perold, Andre F., and Erik Stafford. "Leveraged Loans 2007." Harvard Business School Case 208-145, April 2008. (Revised December 2008.)
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About The Authors

Andre F. Perold

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Erik Stafford

Finance
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