Loans at Risk of More Regulation as Overlooked Lawsuit Heats Up

A lawsuit that went unnoticed by many debt market professionals for years is getting more attention after a US appeals court asked rulemakers to weigh in on whether leveraged loans should be regulated more like bonds.

If judges decide in favor of treating the loans like securities, the $1.4 trillion market might face a series of sweeping changes. Banks selling the debt would have to overhaul their disclosure practices and build systems to speed their trading because bonds have to settle faster, among other shifts.

The US Securities and Exchange Commission is working on a response to a federal ...