Some of the hardest-hit parts of the financial world are finally getting a boost after the Federal Reserve expanded its unprecedented support of credit markets to include the debt of riskier borrowers.
Real estate investment trusts that buy private mortgage bonds, business development companies that lend to small or highly leveraged companies and funds that hold some of the riskiest types of complex debt all surged on Thursday.
The central bank, which until today had limited its stimulus efforts to investment-grade corporate debt and only the safest of mortgage-related securities, unleashed its most potent wave of stimulus as it seeks to keep credit flowing while businesses are shut during the pandemic. Wall Street executives including Apollo Global Management Inc.’s
U.S. REITs, which hold everything from investments in offices and shopping centers to home mortgages, had lost $325 billion in value this year through last week. Among the hardest hit are versions that finance residential and commercial loans.
Many had been forced to sell assets after the value of their investments tumbled. Leverage, used to increase returns when times were good, amplified losses, and firms that operate REITs, including
The Fed’s actions are a win for Barrack, who repeatedly called for the government to intervene in a broader swath of debt markets.
While the Fed’s addition of AAA-rated, non-agency commercial mortgage-backed securities and collateralized loan obligations to the Treasury Asset-Backed Loan Facility falls short everything Barrack called for, “its definitely the correct response at this moment,” he said on Thursday when asked about the measures.
“These are incredibly important steps to further support credit flow to households and businesses,” SFA chief executive officer
BDCs, which make up a $110 billion pocket of the private credit industry, have been battered in recent weeks as the vehicles’ mostly retail investor base unloaded shares amid fears that the coronavirus pandemic would hit small and mid-sized businesses the hardest.
--With assistance from
Shannon D. Harrington
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