Senior Loan Talking Points – June 18, 2020

Jeffrey Bakalar
Dan Norman
  • The U.S. loan market remained steady this week, as the S&P/LSTA Leveraged Loan Index (the “Index”) posted an advance of 0.24% for the seven-day period ended June 18. The average Index bid moved up to 90.88, representing a 12 basis points increase.
  • After a prolonged stint of scarce newissue supply, the primary market finally kicked into higher gear this week, with about $11.1 billion launched into syndication, the largest weekly figure since the first week of February ($16.2 billion). The increased influx was largely tied to buyouts and acquisition-related activity. In the forward pipeline, repayment activity slowed relative to expected new supply, as the former outstrips the latter now by just $1.4 billion, compared to $6.0 billion in the prior estimate.
  • Trading action remained fairly busy in the secondary market, while the pace of ratings downgrades slightly picked up this week, as S&P lowered 14 facilities from the Index constituent list, five of those into the CCC cohort.
  • On the CLO front, there were five new CLOs pricing this week (including one of Voya’s own), bringing MTD and YTD figures to $4.1 billion and $31.4 billion, respectively. On the other hand, retail loan investors withdrew $397 million from loan mutual funds and ETFs for the five business days ended June 17.
  • There were two defaults the Index during the week.
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 June 12, 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 twelvemonth 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.