Senior Loan Talking Points - May 20, 2021

Jeffrey Bakalar

Jeffrey Bakalar

Group Head and Chief Investment Officer, Leveraged Credit Group

Mohamed Basma

Mohamed Basma, CFA

Managing Director, Head of Senior Loans and Global CLOs

Tamara Wieging

Tamara Wieging

Vice President, Client Portfolio Manager

  • Loans moved higher this week despite some volatility in equity markets. Trading levels were noticeably firmer with a 14 bps advance in the average bid price of the S&P/LSTA Leveraged Loan Index (the “Index”) for the seven days ended May 20. This resulted in a total return of 0.20% over the course of the weekly period, bringing the YTD return for the asset class to 2.64%.
  • New issue activity increased this week, including the emergence of a few large refinancing transactions, as issuers took advantage of the favorable market conditions. These deals, coupled with offerings on the M&A front, amounted to a healthy launch volume of $15.4 billion. In the forward pipeline, repayment activity expanded and now outpaces expected new supply by about $7.2 billion, compared to $2 billion last week.
  • Across the secondary, the average bid of the LCD’s flow-name loan composite notched its largest daily gain on May 20 since April 8, and now sits at 99.23% of par. Allocations remained on the quiet side, having poured in at busy clip for much of the year.
  • It was another week of strong investor demand for loans. Starting with the retail space, inflows amounted to $685 million for the week ended May 19 as per Lipper. CLOs also enjoyed another week of healthy issuance, as five more deals priced. YTD levels are just under $60 billion.
  • There were no defaults in the Index this week.
Average Bid: S&P/LSTA LLI
Average Bid: S&P/LSTA LLI
Average 3-YR Call Secondary Spreads: S&P/LSTA LLI 1,2
Average 3-YR Call Secondary Spreads: S&P/LSTA LLI 1,2
Lagging 12-Month Default Rate: S&P/LSTA LLI 3
Lagging 12-Month Default Rate: S&P/LSTA LLI 3
Index Stats
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.

1658027

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 14, 2021.

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.