Investors Face Losses of 80% on Leveraged Loans as Defaults Rise

The leveraged loan market is on track to hand investors the biggest losses on record for defaulted loans.

Loans have been trading for around 22 cents on the dollar after default this year, implying that investors will ultimately recover somewhere around that range, according to Bank of America Corp. strategists. That’s far below the average of about 70 cents that leveraged loan investors have historically recovered from busted companies.

What’s different in this cycle is, the legal documents for loans offer fewer protections than they have historically, after money managers gave up safeguards during a decade of easy ...