Another issue is overly-aggressive adjustments to earnings before interest, taxes, depreciation and amortisation (EBITDA) of a company borrowing money, IOSCO said.

"Alongside looser covenants, there is evidence that headline debt-to-EBITDA may be understated," it said.

Investors have long worried that the EBITDA used, boosted by "add backs", may not be achievable, and that it masks the true amount of leverage.

"EBITDA adjustments based on future synergies, earnings and asset disposals should be made on a reasonable basis and borrowers are encouraged to provide clear justifications of these adjustments to investors," the proposed guidance says.

There is also a lack of transparency in the private finance market, which has experienced rapid growth, with private market assets under management reaching $12.8 trillion in June 2022, IOSCO said in a separate report.

U.S. companies have raised more money in private markets than in public markets in each year since 2009, it added.

"While the inherent opacity in private finance provides investors with some insulation from the transparency costs faced in public markets, it could also jeopardize availability of information that regulators and investors require to effectively assess risks," IOSCO said.

Eoin Treacy's view

The size and lack of transparency within the leveraged loan market is daunting, and there are clear risks associated with the sector. However, it is also the one portion of the bond market that has been immune to interest rates despite investment grade selling off aggressively over the last 18 months.