Senior Loan Talking Points– August 20, 2020

Jeffrey Bakalar

Jeffrey Bakalar

Group Head and Chief Investment Officer, Senior Loans

Dan Norman

Dan Norman

Group Head and Senior Managing Director, Senior Loans

  • Senior loan performance continued to strengthen this past week, as the S&P/LSTA Leveraged Loan Index (the “Index”) returned 0.18% of the seven-day period ended August 20. The average bid of the Index increased by 11 bps, and now sits at 92.57.
  • New loan issuance was quiet this week with just a few new deals launched, as activity slowed down to match the typical end of summer pace. Nonetheless, August has been a busy month by historical standards, with the current MTD volume of $17.1 billion already marking the third highest monthly figure on record for the asset class. In the forward pipeline, pending repayment activity increased in relation to expected supply, as the former outstripped the latter by about $12 billion this week, versus $6.4 billion last week.
  • Secondary loan bids held steady in what was a quiet week of trading, while company-specific news led to some downward movement for a few issuers.
  • There were no CLOs issued during the week. YTD levels remain at roughly $47 billion. Meanwhile, outflow activity accelerated in loan mutual funds/ETFs, as retail investors withdrew about $1.18 billion for five business days ended August 19.
  • The Index did not experience any defaults during the week, and the trailing 12-month default rate by amount outstanding was unchanged at 4.08%.
Average Bid
Average Three Year Call Secondary Spreads
Lagging 12 Month Default Rate
Index Stats

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.

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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 14, 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.

This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) changes in laws and regulations and (4) changes in the policies of governments and/or regulatory authorities. The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions and other factors.  

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Past performance is no guarantee of future results.