Senior Loan Talking Points
Managing Director, Head of Bank Loans and Global CLOs
Weekly Notables
Risk assets have performed in solid fashion to start the new year despite new geopolitical headlines and economic prints that showed mixed signals. The US loan market, as represented by the Morningstar LSTA US Leveraged Loan Index (Index), returned 0.22% for the seven-day period ended January 8. Trading levels firmed in the secondary market, as the average Index bid price gained 12 basis points (bps), closing out the week at 96.76.
The primary market was active to start the year, as over $10 billion has been issued so far. LBO activity has been the primary driver, followed by refinancing transactions. Given the more constructive secondary backdrop, there was also fresh slate of repricing transactions. Looking ahead, net of approximately $27.2 billion of anticipated repayments that aren’t associated with the forward calendar, repayments outstrip supply by approximately $9.3 billion, which is roughly in line with last week’s $9.7 billion.
In the secondary market, idiosyncratic news remained prominent, while AI-related headlines continued to be a theme. Across the credit quality spectrum, Single-B loans outperformed the rest of the ratings stack, while BBs and CCCs experienced similar returns.
In terms of investor demand, no new CLOs have been issued to date. However, retail loan funds started off on a positive note, with Morningstar reporting an aggregate inflow of $185 million for the week ended January 8. This marks the first week of net inflow activity following four consecutive weeks of withdrawals.
There were no new defaults in the Index during the week.
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: December 2025
The US loan market ended the year on a positive note, as the Index gained 0.64% in December. This pushed the full-year return for the asset class to 5.90%. Although this trailed the robust performance seen in the prior two years given the more pronounced secondary market weakness and lower overall interest carry, the loan market still delivered an above-average return in 2025. Price return at the Index level was largely flat in December, as coupon income drove performance. This was influenced by additional declines in CCC bid levels, as both BBs and Bs saw modest price appreciation. On a full-year basis, BBs outperformed all other ratings, which has only happened in three other instances in the history of the asset class, while CCCs were notable underperformers as idiosyncratic risk was elevated. The weighted average Index bid price gained 17 bps in December, to 96.64, but was down 69 bps on a YTD basis.
Technical conditions remained supportive, which has been a key theme all year. New issue activity expanded in December despite the seasonal slowdown. Given the more stable secondary market backdrop, repricing transactions increased to $31.2 billion, the fifth largest monthly total of the year. Net of repricing activity, institutional issuance also increased, with roughly $25.2 billion issued during the month, largely driven by a pick-up in M&A activity. Full-year supply (excluding repricings) totaled $439.1 billion, about 12% off last year’s pace. Much of the shortfall represents lower refinancing activity, as M&A/LBO supply improved by about 10%, while dividend recaps were flat year-over-year. Demand remained healthy due to strong CLO issuance. In December, managers priced $14.9 billion across 31 deals, which pushed full-year issuance to $209 billion, topping the prior record set in 2024 of $203 billion. Both BSL and middle market CLO supply set new records in 2025. On the other hand, retail loan funds continued to experience outflows, as LCD reported a $1.09 billion net withdrawal in December, resulting in $10.7 billion of aggregate outflows for the year – a significant reversal from last year’s net inflow of $9.4 billion.
There were no new payment defaults in the Index during the month, as the trailing payment default rate by principal amount decreased by 2 bps to 1.23%. Looking at the entire year, 13 companies defaulted on their loans in 2025, down from 17 in the prior year. LCD’s dual-rate tracker that includes liability management exercises (LMEs) continued to decline in December, easing to 3.35% at the end of the month (the lowest level since Sep 2023), with just one LME default reported during the period and a few more rolling off. For the year, there were 24 issuers within the Index that conducted an LME transaction, which was well below the record 38 issuers in 2024.
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).