What defines a leveraged loan?

A leveraged loan is defined primarily by its association with borrowers who possess a higher level of existing debt relative to their earnings. Such loans are often extended to those who do not have investment-grade ratings, suggesting that they carry a higher risk of default.

The characteristic that identifies a leveraged loan is that it typically carries a spread of more than 125 basis points over a benchmark rate like LIBOR (London Interbank Offered Rate). This wider spread is a reflection of the additional credit risk that lenders assume when they extend loans to borrowers who have already taken on considerable debt or have lower creditworthiness. Thus, the nature of these loans and their interest payments indicates the borrowing entity's leveraged status.

The other options do not encompass the primary definition of a leveraged loan. Fixed interest rates, the subordinated nature of loans, or investment-grade ratings do not adequately represent the primary risk-focused criteria that define leveraged loans in the finance industry.