- Senior loans enjoyed another good week, as secondary trading firmed, particularly within the single-B cohort. Overall, the S&P/LSTA Leveraged Loan Index (the “Index”) gained 0.51% for the week ended May 14, while the average Index bid price saw a 39 basis point improvement, closing out the period at 86.63.
- The primary market experienced a welcomed slate of modest new-issue paper. Included in the deal flow was a sizable M&A transaction, while the rest of the activity was largely comprised of issuers looking to bolster liquidity. Nonetheless, the small uptick is a positive development for the asset class, given that new supply was virtually nonexistent a few weeks ago. In the forward pipeline, the current volume of repayments still outpace new supply.
- It was a very busy week of earnings in the secondary market, as about 51 public loan issuers reported quarterly results, leading to some outsized gains for a several issuers that beat consensus estimates.
- Redemption activity within loan mutual funds/ETFs was mild this week, at just $185 million for both segments, while three new vehicles were issued in the CLO space.
- With three more Index constituents tripping defaults this week, the trailing-12-month default rate has now surpassed the historical average of 2.85%. Of course, most market participants expected this development to take place sooner rather than later, given the unprecedented economic disruption caused by COVID-19.
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 May 8, 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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