Senior Loan Talking Points

Time to read: Minutes
Mohamed Basma

Mohamed Basma, CFA

Managing Director, Head of Leveraged Credit

Weekly Notables

Performance in the US loan market reflected a softer tone this week, as the Morningstar® LSTA ® US Leveraged Loan Index (Index) returned -0.09% for the seven-day period May 25. The average Index bid price declined by 12 bp, finishing the week at 92.93.

New issuance in the primary market remained low this week. MTD volume has totaled $12.2 billion, versus $23.2 billion in April. Supply continued to be driven by refinancings, while M&A transactions remained muted. In the forward calendar, net of the anticipated $6.6 billion of repayments not associated with the forward pipeline the amount of repayments now outstrip net new supply by about $2 billion, versus net new supply of $119 million in the prior estimate.

The secondary trading levels declined across the board during the week. In terms of rating cohort performance, CCC loans remained in the lead with a positive return of 0.20%, while Double-Bs and Single-Bs returned -0.03% and -0.17%, respectively.

Turning to the investor demand front, CLO managers priced three new deals this week, bringing the YTD level to $47.23 billion. According to Morningstar Direct, retail loan fund outflows moderated, as $733 million exited the market for the week ended May 24, down from $1.03 billion last week.

 There were no defaults in the Index during the week.

Average Bid
May 1, 2019 to May 25, 2023
Average Bid
Average 3-YR Call Secondary Spreads1,2
May 1, 2019 to May 19, 2023
Average 3-YR Call Secondary Spreads 1,2
Lagging 12 Month Default Rate3
May 1, 2019 to May 25, 2023
Lagging 12 Month Default Rate 3
Index Stats
Index Stats

Source:  Pitchbook Data, Inc./LCD, Morningstar ® LSTA ® Leveraged Loan Index. Additional footnotes and disclosures on back page. Past performance is no guarantee of future results. Investors cannot invest directly in the Index. *The Index’s average nominal spread calculation includes the benefit of base rate floors (where applicable).



Unless otherwise noted, the source for all data in this report is Pitchbook Data, Inc/LCD.  Pitchbook Data/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 May 19, 2023.

2. Excludes facilities that are currently in default.

3. 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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