Senior Loan Talking Points
Mohamed Basma, CFA
Managing Director, Head of Leveraged Credit
Weekly Notables
The loan market was steady this week, as The Morningstar® LSTA® US Leveraged Loan Index (Index) returned 0.33% for the seven-day period ended May 1. The average Index bid price gained 27 bp, closing out the week at 95.82.
The primary market was somewhat active this week, with several M&A and LBO deals hitting the market, along with a few dividend recaps. There was no refinancing or repricing activity during the week. Total institutional volume was about $5.5 billion. Looking at the forward calendar, net of the anticipated $19 billion of repayments not associated with the forward pipeline, the amount of repayments now outstrip new supply by about $3.7 billion, versus $2.2 billion last week.
The secondary market was stable. In terms of performance, lower-rated credits outperformed this week. For context, Double-Bs, Single-Bs and CCCs returned 0.28%, 0.36% and 0.38%, respectively.
There were four CLOs deals that priced this week, pushing the YTD volume to $63.92 billion. Voya priced their second deal of the year on May 2nd. On the other hand, retail flows were negative for a ninth consecutive week. There were about $154 million that exited the funds during the week. The majority of this week’s outflows came from ETFs, which saw $110 million in withdrawals, while mutual funds saw outflows of $44 million. On a YTD basis, total outflows amount to $5.6 billion, with $3.6 billion coming from ETF and $2 billion from mutual funds.
There were no defaults in the Index this week.
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).
Monthly Recap: April 2025
Volatility across markets peaked following liberation day on April 2nd. The loan market was turbulent, marking its highest level of volatility since the FED began raising rates in March 2022. The Index slipped 0.63% on April 3, marking its steepest decline since March 13, 2023, when it fell 0.76%. Later in April, the asset class slightly recovered from the losses seen in March and early April., closing the month at -0.05%, versus from -0.31% in March. On a YTD basis, loans returned 0.43%, which is one of the weakest starts to the year post-GFC.
In the secondary market, loan prices declined to 94.41 on April 9, marking the lowest level since July 2023 and 292 bp from December 2024 levels. Toward the end of the month, prices stabilized following the announcement of a 90-day pause and signals of potential tariff deregulation. Overall, the market absorbed these developments with a net decline of 54 bp in the average bid price, which closed the month at 95.77. By ratings, Double-Bs and Single-Bs ended April flat , but CCCs were in the red at 1.74%.
The market saw a pause in issuance in the final days of March and remained largely inactive until late April, when a handful of transactions cautiously tested the waters. This marked the longest stretch without issuance for 15 days since the 24-day shutdown in March and April 2020, excluding the typical seasonal slowdown in August and year-end. Total issuance was about $7.5 billion for the month, down from $31.5 billion in March.
On the demand side, activity was low amid the ongoing spread widening. CLO issuance totaled $15.4 billion across 33 deals, down from the February and March average of $19 billion/40 deals. On the retail front, loan funds experienced their largest outflow since March 2022, with redemptions totaling $10.6 billion.
There were two defaults in the Index during the month (Health Channels and Ascend Performance Materials LLC). The trailing 12-month default rate by principal amount decreased by 9 bp to 0.73%. Including LMEs, the loan default rate closed out April at 4.38%, up from 4.31% in March.
