When companies need to borrow money, they can borrow from the bank or issue bonds. Big corporations will often do both. If the bank lends the money and then sells some of their exposure to the market, those bank loans can then trade, just like bonds do. But as with all investments, bank loans carry a certain amount of risk.
HMW: I would just say, that the risk of a bank loan really changes over market cycles. So when markets are very enthusiastic, a lot of garbage gets issued. So when I say garbage, I mean things that there’s not of a lot of workout recovery value there when the markets go down. So, we’ve done some research on it and we found that the more enthusiastic markets are, they get more expensive, and then a lot more junk comes to the market and then a couple of years later, that’s when there’s more workouts because the junk doesn’t actually survive that long. So it’s just interesting — there are definitely credit cycles and I think that it’s key that if you are invested in some sort of a bank loan fund, that the actual policy allows for the manager to not just buy bank loans, because if you’re forced to buy, you’re going to buy whatever is out there. If you have the option of buying something else instead, then you have a better potential upside.