- The U.S. loan market continued to rally this week, as the S&P/LSTA Leveraged Index (the “Index”) returned 0.56% for the seven-day period ended August 13. Loan bids firmed across all rating buckets. Overall, the average Index bid moved up by 46 basis points (“bps”), closing out the week at 92.46. MTD returns for August are now at 0.92%.
- New loan issuance remained steady with a total of $5.7 billion launched this week. From the new deal flow, transactions were mostly comprised of recapitalizations and acquisition-related paper. Looking at the forward pipeline, pending repayments still outstrip visible supply, albeit by less than in the prior estimate ($6.4 billion vs. $9.8 billion).
- In the secondary market, the upward momentum in trading levels pushed the LCD’s flow-name loan composite to 95.44% of par, representing an 84 bps gain from last week. Company-specific news led to additional price moments for a handful of issuers.
- Three new CLOs were priced during the weekly period, bringing August totals to $1.8 billion, and YTD totals to $46.0 billion. Retail flows were negative once again, as about $222 million left loan mutual funds/ETFs for the five business days ended August 12.
- UTEX Industries (Oil & Gas) was the sole Index default this week. The default rate by amount outstanding now stands at 4.08%, a slight uptick form last week.
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 August 7, 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.