- The loan market continued to be influenced by the highly uncertain macro environment this past week, as hotter inflation data, aggressive tightening action (normally a positive driver of loan demand), and magnified recession worries added fuel to the already firmly negative sentiment across broad financial markets. Against that backdrop, the S&P/LSTA Leveraged Loan Index (the “Index”) returned -1.55% for the seven-day period ended June 16, while the average Index bid price dropped by 159 bps, to 93.66.
- The primary market was quiet in anticipation of the Fed announcement, as only a few deals were launched during the week. Dissecting the forward pipeline, net new supply expected to enter the market (net of anticipated repayments) now totals about $18.6 billion, down from last week’s $22.9 billion.
- Secondary trading levels softened given the higher volatility. Performance reflected a bias for higher quality, although the dispersion among ratings categories was largely limited.
- Investor demand cooled in response to the volatility, evidenced by sizable outflows out of loan ETFs and mutual funds at roughly $2.03 billion for the week ended June 15 (Lipper weekly data). Meanwhile, CLO issuance continued at a decent clip, with managers pricing six new deals for the week, bringing YTD levels to $64.2 billion. Most of these prints reflected some sort of nuance, such as manager-controlled equity or opportunistic “print and sprint” stylings.
- There was one default in the Index during the week (Revlon Consumer Products Corp).
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 April 22, 2022.
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.