- The loan market clawed back some of last week’s outsized losses, as the S&P/LSTA Leveraged Loan Index (the “Index”) returned 2.84% for the weekly period, while the Index bid gained 212 basis points. On a YTD basis, loans are now down 14.91%, with secondary spreads in excess of 13% (chart at right, middle).
- Trading volumes remained at near records and levels generally moved higher (in some cases gapping upward) over the course of the week. Still, bid-ask spreads remain wide, indicating a less than normal market environment.
- At the issuer level, a large chuck of borrowers have tapped into additional lines of credit, particularly those in sectors most impacted by the shuttering of business activity. LCD reported this amount to be roughly $138 billion.
- Retail/ETF fund outflows persisted in markets for both loans and high-yield bonds, albeit to a lesser degree compared to the prior week. For the five business days ended Mar. 25, investors withdrew roughly $2.77 billion, versus $4.52 billion last week. CLO formation remains on hold, with no new vehicles pricing.
- All eyes are on watch for rating agency actions. Downgrades are certainly expected, but the methodology and pace will play a role in market response.
- There were no defaults in the Index.
Source: S&P/LCD, S&P/LSTA Leveraged Loan Index and S&P Global Market Intelligence. Additional footnotes and disclosures on back page. Past performance is no guarantee of future results. Investors cannot invest directly in the Index.
Unless otherwise noted, the source for all data in this report is Standard & Poor’s/LCD. S&P/LCD does not make any representations or warranties as to the completeness, accuracy or sufficiency of the data in this report.
1 – Assumes 3 Year Maturity. Three year maturity assumption: (i) all loans pay off at par in 3 years, (ii) discount from par is amortized evenly over the 3 years as additional spread, and (iii) no other principal payments during the 3 years. Discounted spread is calculated based upon the current bid price, not on par. Please note that Index yield data is only available on a lagging basis, thus the data demonstrated is as of March 20, 2020.
2 – Excludes facilities that are currently in default.
3 – Comprises all loans, including those not tracked in the LPC mark-to-market service. Vast majority are institutional tranches. Issuer default rate is calculated as the number of defaults over the last twelve months divided by the number of issuers in the Index at the beginning of the twelve-month period. Principal default rate is calculated as the amount defaulted over the last twelve months divided by the amount outstanding at the beginning of the twelve-month period.
General Risks for Floating Rate Senior Loans: Floating rate senior loans involve certain risks. Below investment grade assets carry a higher than normal risk that borrowers may default in the timely payment of principal and interest on their loans, which would likely cause the value of the investment to decrease. Changes in short-term market interest rates will directly affect the yield on investments in floating rate senior loans. If such rates fall, the investment’s yield will also fall. If interest rate spreads on loans decline in general, the yield on such loans will fall and the value of such loans may decrease. When short-term market interest rates rise, because of the lag between changes in such short term rates and the resetting of the floating rates on senior loans, the impact of rising rates will be delayed to the extent of such lag. Because of the limited secondary market for floating rate senior loans, the ability to sell these loans in a timely fashion and/or at a favorable price may be limited. An increase or decrease in the demand for loans may adversely affect the loans.
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Past performance is no guarantee of future results.