Senior Loan Talking Points
Managing Director, Head of Leveraged Credit
Weekly Notables
The broader market remained on weaker footing this week, driven by softer performance in tech names and growing investor angst about the US government shutdown. Key stock indices declined, while credit spreads modestly widened across fixed income sectors. The subdued tone was felt in loans, as the weighted average bid price of the Morningstar LSTA US Leveraged Loan Index (Index) fell by seven basis points (bps) for the seven-day period ended November 6. The Index registered a positive return of 0.05%, with coupon income offsetting market value declines.
The primary market was busier this week, as arrangers launched a bevy of new transactions. The key driver was M&A-related supply across various industries, including gaming, environmental consulting, and data management. In addition, a handful of deals related to refinancings and dividend recaps were prevalent as well. In the forward calendar, net of approximately $27.1 billion of anticipated repayments that aren’t associated with the forward pipeline, repayments outstripped net supply by roughly $926 million. In the prior week, net expected supply was $4.3 billion.
In the secondary market, trading levels declined, led by the CCC-rated segment of the market. Across industries, the food products space was a notable outperformer this week, while healthcare and software-related pockets were key laggards.
It was a busy week of CLO issuance, as managers priced 16 new deals this week for a total of roughly $7.45 billion (the most of any week since mid-July). As a result, the YTD tally expanded to roughly $175 billion. US retail loan funds reported a modest inflow of $36 million, according to Morningstar, ending the streak of three consecutive weeks of outflows.
There was one new Index default this week (Klockner Pentaplast).
Source: Pitchbook Data, Inc./LCD, Morningstar LSTA US 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: October 2025
October was a positive month for risk assets, as the US-China trade truce, solid economic data, and stable earnings all buoyed investor sentiment. Early in the month, markets experienced brief episodes of volatility following increased tension between US and China, as President Trump threatened imposing additional tariffs on China. In the subsequent days, market fears were assuaged as the tariff truce was extended, and export restrictions were postponed. The focus began to shift towards negative headlines stemming out of credit markets and related regional bank charge offs, as a few high-profile bankruptcies increased scrutiny about lending standards across various segments of markets, including banks, private credit and BDCs. At the October FOMC meeting, the Fed delivered a widely-expected 25 bps rate cut, but signaled a more hawkish outlook, with Chairman Powell pushing back against markets pricing in a December rate cut. Although 10-year Treasury yields jumped in reaction to this news, they ended modestly lower compared to the start of the month. With rates moving down and credit spreads remaining range-bound, fixed income sector broadly delivered positive returns for the month.
The US loan market gained 0.22% in October, representing the weakest monthly performance since April. Idiosyncratic and sectoral challenges, in addition to weakness in AI-linked names, weighed on secondary market performance. Overall, the weighted average bid price of the Index fell by 39 bps, ending the month at 96.67. Most of the price declines occurred early in the month, with a partial rebound towards the end of the month. The market remained bifurcated, as the share of loans priced above par rose to 42% by the end of the month, while the share of loans priced below 90 increased to 9.2% – the highest since early May and primarily driven by lower-rated borrowers within the software and chemical space. By ratings, the market reflected a more cautious tone, as CCCs underperformed.
The technical backdrop remained stable, as increased CLO issuance offset elevated retail fund outflows. Activity in the primary market was quieter in October, as weaker secondary levels curtailed new deal flow. On a similar note, repricing transactions fell considerably, with just $11.5 billion repriced during the period – a five-month low. New-issue conditions were less accommodating amid secondary market weakness, with a few opportunistic deals withdrawn from syndication and several deals adding concessions to get across the finish line. Net of repricing activity, total volume was about $29 billion, with a decent portion of that tied to M&A deals. YTD supply (excluding repricings) is currently tracking $397 billion (down 10% from last year’s pace). Much of the shortfall represents lower refinancing activity, as M&A supply has increased. In terms of investor demand, CLO issuance rose to $18.3 billion across 39 deals, as compared to $11 billion/22 deals in September. YTD issuance has now eclipsed $170 billion and is running around 3.4% ahead of last year’s pace. Retail loan funds continued to experience outflows, with the last 11 out of 15 weeks in negative flow territory. For October, LCD reported a $2.6 billion withdrawal from the asset class.
The traditional loan payment default rate remained low in October, as the Index’s trailing 12-month default rate by principal amount ended the month at 1.46%, with no new defaults experienced for the period. Furthermore, LCD’s dual-rate tracker that includes liability management exercises (LMEs) continued to decline. The trailing tally fell to 4.17%, with one new issuer added and a few rolling off.
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).